ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, March 1, 1996 TAG: 9603010061
SECTION: BUSINESS PAGE: B-8 EDITION: METRO
DATELINE: WASHINGTON
SOURCE: DON PHILLIPS THE WASHINGTON POST
Norfolk Southern Corp. has abandoned its latest effort to acquire Conrail because a hostile takeover would be too expensive and the chances for success are slim, according to railroad industry sources.
For almost two years, Norfolk-based NS has engaged in on-and-off talks with Philadelphia-based Conrail to form a railroad system stretching from Florida to Canada. When Conrail Chairman David LeVan said his railroad was not interested, NS considered a hostile takeover, sources have reported.
But the sources said NS has decided that for now that route is not feasible because of the high price, Pennsylvania's strict anti-takeover law and the problem of how the railroad could be divided with CSX Transportation Inc. without destroying Conrail's value to NS.
NS efforts to acquire Conrail began in 1987 when the federal government decided to divest itself of the railroad. Congress formed Conrail in 1976 from lines of the Penn Central and other bankrupt Eastern railroads.
Norfolk Southern, which has never acknowledged discussing a Conrail merger or takeover, declined to comment, as did a Conrail spokesman.
Norfolk Southern signaled that it had dropped the idea Jan. 23 when it announced a stock-repurchase plan for about 30 million shares for $2.9 billion by 2000. That effectively means that the railroad has decided to do something with its cash reserves other than bid for Conrail.
The cost of a takeover has risen dramatically in the past year as investors have bid up Conrail's price, partly in expectation of a bid. After trading in the mid-50s early last year, Conrail's stock price has climbed steadily, closing Thursday at $72.121/2.
The premium that NS would have to add in a takeover battle could run the takeover price over $6 billion, sources said.
Some analysts have been saying for weeks that the possibility of a takeover was being overblown. Steve Lewins of Gruntal & Co. wrote Dec. 16 that ``we stand against the mob on this one,'' and that the current round of Western railroad mergers is the last consolidation of the railroad industry, at least into the next century.
In the East, there are three major rail systems. Conrail dominates the Northeast and has lines as far west as Chicago and St. Louis. NS and CSX Transportation serve roughly the same territory throughout the Southeast and Midwest, with some lines into the Northeast.
Lewins said a hostile bid for Conrail at this point also would raise anti-competitive issues. Even if NS were successful, rival CSX would demand large chunks of Conrail.
``That would reduce the value of the Conrail property to Norfolk Southern, probably causing its stock price to crater,'' Lewins said.
CSX Chairman John Snow said in September that his railroad ``would be satisfied with nothing less than a major division'' of Conrail.
NS also faces dogged resistance from LeVan, who has vowed that Conrail will remain independent and has taken action to make it prohibitively expensive, including steps to shore up the railroad's stock price.
Pennsylvania's anti-takeover laws also work in LeVan's favor. But few believe LeVan will prevail for more than a few years.
``Eventually, Conrail will become part of the great transcontinental rail merger,'' Lewins said.
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