THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Friday, August 4, 1995 TAG: 9508040444
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: FROM WIRE REPORTS
LENGTH: Medium: 67 lines
Union Pacific Corp. is No. 1, again.
In a deal valued at $5.4 billion, Union Pacific has agreed to buy Southern Pacific Rail Corp.
The proposed merger would restore Union Pacific as the nation's largest railroad company. The deal eclipses that of the recently combined Burlington Northern and Santa Fe Pacific railroads and gives Union Pacific a stronger presence in the southwestern part of the country.
Starting next week, Union Pacific will offer $25 per share for up to 25 percent of Southern Pacific's common stock while the railroads await approval of the deliberative Interstate Commerce Commission.
If federal regulators approve the deal, Union Pacific would finish the buyout by purchasing 60 percent of the Southern Pacific shares with Union Pacific stock and the remaining 40 percent in cash.
The cash and stock portion totals about $4 billion. Union Pacific will also take over about $1.4 billion worth of Southern Pacific debt.
The deal was announced after trading ended on Wall Street for the day. Union Pacific finished 62 1/2 cents per share higher at $65 on the New York Stock Exchange. Southern Pacific rose $2.62 1/2 to $22.25 after news of the talks were reported in Thursday's editions of The Wall Street Journal.
The purchase of Southern Pacific would give Union Pacific access to routes between chemical plants along the Texas Gulf Coast and the Los Angeles area and bring it closer to Mexico as that country becomes a more important trading partner, analysts said.
In addition, the Southern Pacific routes in Southern California would help Union Pacific relieve congestion on its freight lines.
Drew Lewis, Union Pacific's chairman and chief executive, said combining the two railroads would lead to cost savings totaling $500 million annually.
``The combined system will be able to offer new services that neither Union Pacific nor Southern Pacific can offer on its own,'' Lewis said.
The sale could face antitrust problems, though, because the combined railroad would dominate petrochemical rail shipments from the Texas and Louisiana gulf coasts.
Union Pacific would probably unload some of Southern Pacific's routes or provide access to competitors to avoid antitrust concerns, analysts said.
Railroad mergers are nothing new. Union Pacific bought the Missouri Pacific in 1982. Burlington Northern is a combination of several old roads: Burlington, North Pacific, Great Northern and Frisco.
In 1983, Santa Fe bought Southern Pacific. But in 1987, a less friendly ICC proscribed their merger. Southern Pacific then combined with the Rio Grande.
If Southern Pacific now goes to Union Pacific, the West will be left with just major rail carriers. Still independent are the smallish Kansas City Southern and the Illinois Central, which talked merger themselves recently to no avail.
Rail competition in the East already has been reduced to three lines, Conrail, Norfolk Southern Corp. and CSX Corp. Each of these railroads have merger histories of their own.
Conrail was formed out of the wreckage of the combination of the Pennsylvania and New York Central railroads. Norfolk and Southern were once two. CSX combined the Chesapeake & Ohio, Baltimore & Ohio and other lines.
There has been speculation of a merger between Conrail and Norfolk Southern. by CNB