Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: SUNDAY, March 4, 1990 TAG: 9003042093
SECTION: VIRGINIA PAGE: C-1 EDITION: METRO
SOURCE: MARGARET EDDS LANDMARK NEWS SERVICE
DATELINE: RICHMOND LENGTH: Long
A key state official has resigned in a dispute with Gov. Douglas Wilder over the plan to merge the CSX Corp. and the RF&P Corp. A prominent legislator with ties to both Richmond-based companies has been accused of conflict of interest. And the episode has emerged as a study in the interlocking relationships between politics and big business in Virginia.
"It's a great big story," said S. Buford Scott, a Richmond stockbroker with personal and political ties to most of the key players in the deal.
The immediate issue is whether CSX's proposal to pay $385 million for the portion of RF&P that it does not already own is fair to stockholders, a group that includes the state. Some prominent analysts have endorsed the deal; others have termed it outrageous.
"I've been in this business 25 years, and I've never seen people more upset about an offer than this one," said George Williamson, vice president of the Richmond-based Financial Corporation of Virginia, a critic of the sale.
CSX, which owns 50.1 percent of the voting stock of RF&P, is among the nation's largest transportation firms and one of the state's most politically active corporations.
Chartered in 1834 as the Richmond, Fredericksburg and Potomac Railroad, the RF&P is a smaller, but financially strong company that operates a 113-mile track from Richmond to Washington, as well as a profitable real estate arm. It is the nation's oldest transportation firm.
What makes the proposed merger a matter of broad interest is the terms of the RF&P's founding 156 years ago. Hungry for better transportation, the state helped launch rail companies by buying some of their stock. In RF&P's case, those shares have remained part of the state's investment portfolio and in the early 1970s were tendered to the Virginia Supplemental Retirement System, where they remain.
The VSRS, which provides retirement benefits for 240,000 state and local government employees, controls 20 percent of RF&P's voting stock. By law, the legislature must approve any sale of the shares.
Enter five additional players with a long history of political infighting:
Wilder; J.T. Shropshire, the governor's chief of staff; Senate Majority Leader Hunter B. Andrews, who owns stock in both CSX and RF&P and sits on the RF&P board as a representative of state government; House Appropriations Chairman Robert B. Ball Sr., also a legislative appointee to the RF&P board; and Charles B. Walker, an RF&P board member and a Republican who, until his resignation Feb. 23, was chairman of the board of trustees of the VSRS.
Walker also is chief financial officer of the Ethyl Corp., whose top official sits on the board of CSX.
As a state politician, Wilder has been both Andrews' ally and foe on scores of issues. Andrews and Ball also were among those conservative Democratic leaders who gave little support to Wilder's campaign for governor.
Andrews and Shropshire were principals in a battle for control of the Senate two years ago. Andrews accused Shropshire, then clerk of the Senate, of aiding and abetting a group of insurgent Democrats, and convened a hearing to question the clerk's accounting practices.
Walker and Shropshire, as chairman of the state Compensation Board, were on opposite sides in a 1987 dispute between the board and the VSRS over a deferred compensation plan for state employees.
The events that led to Walker's ouster at the VSRS and that turned a spotlight on the overlapping involvements of Andrews and Walker began the day the merger plan was announced.
That morning, Andrews, Walker and Ball went to see Wilder to inform him of the deal. They took along the draft of a bill that would allow VSRS trustees, rather than the legislature, to approve the sale of the state's RF&P stock.
Precisely what occurred in that 15-minute meeting is in dispute.
Ball, Andrews and Walker say the visit was a courtesy call. Several alternative ways for the state to approve the sale of its shares - if Wilder did not want to call the lawmakers into special session - were presented, they said.
According to Laura Dillard, Wilder's press secretary, however, the governor believed he was being asked to endorse the sale immediately and to bypass the legislature. "The clear impression was that they wanted the legislation, and they wanted it with all deliberate speed," she said.
What is undisputed is that the draft of only one bill was presented to Wilder by the group. The proposal called for transferring approval rights from the Assembly to the VSRS trustees. Many of the trustees are believed to favor the merger.
Wilder, wary that the three were trying to pressure him into swift approval of the plan, two days later conveyed his displeasure to Walker via his executive assistant for policy, Walter McFarlane. Their conversation reportedly included the charge that Walker had a conflict of interest in the matter. A day later, Walker quit as VSRS chairman.
"The governor was not surprised, and he did not ask him to reconsider," said Dillard.
Wilder announced that he would not ask the legislature to surrender its right to approve the stock sale, and would request that the matter be considered on the same day as the annual "veto" session, April 18.
Walker suggests that his ouster was more political than high-minded. He argues that he had no conflict because the financial interests of RF&P and the VSRS in the sale were identical, and because he promised Wilder and others he would stay out of the state's deliberations over the stock sale.
"You're here to serve the employees and retirees of the commonwealth, and if you can't do that without political influences emerging, it's time to get out of the way," Walker said last week, explaining his resignation.
Also left to defend himself against conflict charges was Andrews, a Hampton lawyer whose financial disclosure form shows holdings in the $10,001-$50,000 category in both CSX and RF&P. As one of two state representatives on the RF&P board, Andrews was part of an RF&P subcommittee that approved the merger.
In an interview last week, Andrews said he had no conflict because his role on the RF&P board was to represent state retirees, which he did. If the matter comes to a legislative vote, he said, he will decide whether to abstain.
Andrews said his stock in each company is valued at slightly over $10,000, and that annual earnings are far less. As such, it appears the Virginia Conflict of Interest Act would not preclude him from voting on the sale in the Senate.
CSX officials Friday endorsed Wilder's plan to get an independent assessment of the merger proposal.
But several government and business leaders also lamented the departure of Walker. Andrews said he was "very sorry" about the resignation, noting that the fund was financially shaky when Walker took over as board chairman in 1981. According to VSRS officials, the value of the fund's portfolio has grown from $1.8 billion to almost $12 billion during Walker's tenure.
Whether actions by the Assembly and disgruntled stockholders will force CSX to up the ante is unclear. CSX insisted Friday that $34.50 per share is its final offer.
Critics of the plan say it is inadequate, primarily because of the value of RF&P's real estate assets. Prime among them is a 320-acre site in Arlington and Alexandria that once was the nation's largest freight yard, the Potomac Yard.
Today the yard - adjacent to Crystal City - is obsolete, and RF&P has joined with the realty arm of the CSX to develop plans for a mammoth project of shops, hotels, and condominiums: Alexandria 2020.
by CNB