ROANOKE TIMES
Copyright (c) 1997, Roanoke Times
DATE: Saturday, January 18, 1997 TAG: 9701200038
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
SOURCE: CHRISTOPHER DINSMORE LANDMARK NEWS SERVICE
A partisan crowd of loyal Conrail employees packed the gilt house at the Academy of Music in Philadelphia on Friday and heartily voiced their support of the railroad's proposed merger with CSX Corp.
But like their bosses, they went home disappointed.
Conrail shareholders rejected the $9.3billion merger with Richmond-based CSX Corp., throwing their votes behind Norfolk Southern Corp. and its $10.3billion bid for the Northeastern railroad.
The vote forced a stalemate in the fight for Conrail that could be settled quickly or take months to resolve.
CSX is blocked from taking over Conrail, for now. Had CSX prevailed, Norfolk Southern's chances of becoming the biggest railroad in the East might have been all but over.
The vote was close. About 53percent of Conrail shareholders rejected the CSX merger, according to Norfolk Southern. But an overwhelming 92percent of the shareholders who were unaffiliated with either CSX or Conrail rejected the merger.
The official vote won't be released until Monday at the earliest, but Conrail and CSX conceded defeat Friday.
``Now that the shareholders have spoken, it is time for Conrail's board to accept their will,'' said a jubilant NS Chairman David Goode, who was in Philadelphia for the vote. ``We hope that they will seize the opportunity to do that. Our superior offer should be allowed to go forward, and we're ready to have meaningful discussions with Conrail and CSX to that end.''
With the setback to CSX, NS said it would proceed with its plans to spend nearly $1billion to buy 9.9percent of Conrail's stock.
A beaming Goode followed by an entourage of executives and lawyers strode confidently into the shareholders meeting, already sure of the result.
``It may be 13 degrees outside, but it feels like a very pleasant day in Philadelphia,'' Goode said before the vote.
Conrail and CSX appear to have little intention of seeking a compromise with NS. Conrail Chairman David LeVan said his railroad plans to schedule another shareholder vote. He would not say how soon such a vote could take place.
``We obviously have to get out and sell the value of this transaction to our shareholders,'' LeVan said.
Friday's vote effectively blocks the CSX merger, but it doesn't mean NS has won this high-stakes battle for Conrail and its lucrative Northeastern freight rail network.
Conrail asserted after the loss that shareholders were swayed by Norfolk Southern's offer Monday to buy 9.9 percent of Conrail's shares if they vote against the CSX merger. It challenged the integrity of the vote, LeVan said.
``The shareholders can add, and they saw that they could have their cake and eat it, too,'' said Timothy O'Toole, Conrail's senior vice president of finance.
``We didn't need to make the 9.9 percent offer,'' responded Henry Wolf, NS chief financial officer. ``It was not a quid pro quo for the vote.''
The majority of the shareholders had already indicated that they would side with NS, Goode said. With CSX and Conrail challenging the seriousness of Norfolk Southern's bid, the offer ``was a gesture on our part of the firmness of our commitment to the Conrail shareholders,'' he added.
NS expects to buy 9.9 percent of Conrail's stock, the most it can buy without triggering anti-takeover defenses, as soon as possible.
If Conrail and CSX won't negotiate with NS, shareholders will likely be called on again to vote on the CSX merger.
NS will need to maintain its coalition of opposing shareholders to win subsequent votes and, if necessary, attempt to unseat Conrail's board of directors at the next annual meeting.
The shareholders are firmly in Norfolk Southern's camp for the duration, said Alan Miller, senior managing director of Georgeson & Co. Inc., a New York shareholder solicitation firm working for NS.
``I don't think there's any question at all,'' Miller said. ``The situation only gets worse for Conrail.''
CSX and Conrail will apparently test the shareholder's resolve.
``Norfolk must have somehow believed that having the proposal not be approved today would somehow shake the resolve of the Conrail board,'' LeVan said. ``Norfolk is mistaken. The Conrail board is fully committed to the CSX-Conrail merger and will not agree to a transaction with Norfolk Southern.''
Meanwhile NS reiterated its commitment to file an application for control of Conrail with the federal Surface Transportation Board, regardless of the outcome of the fight for shareholders.
NS believes the federal agency, which regulates railroads, would be able to approve its takeover of Conrail regardless of the wishes of Conrail's management and board.
``Whatever happens, we will move forward,'' Goode said.
Based on the shareholders meeting, where the support for Conrail's board was evident in vigorous applause for LeVan and other Conrail speakers, that prospect has many Conrail employees unhappy.
``I fear Norfolk Southern will drink from wells they did not dig and will be warmed from fires they did not build,'' said Joseph Folk, a 25-year veteran Conrail employee.
Referring to Norfolk Southern's attempt to buy Conrail in 1986, Phillip Bonifasi, a third-generation railroad employee, said, ``I remember when Norfolk Southern said we would never survive - our pockets weren't deep enough, our employees weren't committed enough. Just look at us now, baby!''
Four protesters in front of the theater carried signs that said such things as ``Conrail employees support David LeVan'' and ``They shoot horses, don't they?'' with an X through an NS logo of a rearing horse.
Of more than 20 speakers besides Goode at the meeting, only one stood up to question the proposed CSX merger. A retired Conrail employee also voiced concern about how the merger would weaken the pension fund by combining its with CSX's underfunded pension plan.
LENGTH: Long : 106 linesby CNB