THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, November 3, 1996 TAG: 9611020251
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY HENRY J. HOLCOMB, THE PHILADELPHIA INQUIRER
LENGTH: 101 lines
In a bid to build support for its takeover of Conrail Inc., the Philadelphia-based freight railroad, Norfolk Southern Corp. said it would consider building a high-tech freight yard at the now-closed Philadelphia Navy Base.
David R. Goode, Norfolk Southern's chairman and chief executive, said he has already discussed with Philadelphia Mayor Ed Rendell the proposed terminal, which would handle both bulk and containerized cargo.
``The mayor was very supportive,'' Goode said in a Wednesday meeting with Philadelphia Inquirer writers and editors.
The mayor couldn't be reached for comment.
Goode's very preliminary talk of a Navy Base project suggests an attempt to match a freight yard proposal being developed by Norfolk Southern's arch-rival in the Conrail bidding war, CSX Corp.
CSX has been working for more than a year with the Philadelphia Industrial Development Corp. and the Delaware River Port Authority on detailed plans for a big freight yard at the east end of the old Navy Base.
Norfolk Southern's counter of a possible Navy Base project is another example of how Philadelphia is being considered a key player in this latest chapter in the decade-long battle for control of Conrail.
Earlier, CSX said it would move its headquarters to Philadelphia from Richmond. Norfolk Southern, based in Norfolk, responded by saying it, too, would consider doing that if Conrail agrees to talk.
The battle has heated up in the past two weeks. Norfolk Southern, long considered the most likely suitor to walk the corporate marriage aisle with Conrail, was jilted on Oct. 15. That's when CSX and Conrail announced they had agreed to tie the knot in an $8.4 billion cash-and-stock deal.
A week later, Norfolk Southern responded with a hostile takeover bid which it says is worth $9.1 billion, or $100 per share in cash, to Conrail shareholders.
If shareholders approve either deal, the winner will then submit a detailed merger proposal, sometime early next year, to the federal Surface Transportation Board. It will conduct hearings and a formal review of the proposal that will last six months or longer.
Goode's interest in the Navy Base project - a major opportunity to make the region's transportation industry more competitive - is good news, transportation-industry sources said. One said it shows that messages Philadelphians have sent to Norfolk Southern about the region's needs are being heard.
Goode cited his railroad's widely acknowledged success in promoting growth at Virginia seaports as an example of what it would do here.
``My economic-development team is a team any city would be proud to have,'' Goode said.
On other fronts last week, the prickly war of words between the two transportation companies continued.
In a six-page letter to shippers, Goode harshly attacked the CSX's merger proposal as self-serving.
Saying Norfolk Southern ``does not fear balanced competition,'' the letter promised to sell track to a rival railroad to preserve competition in every place left with only one railroad.
A merged CSX-Conrail railroad would control 70 percent of the rail traffic east of the Mississippi River, the letter said.
It attacked CSX's plan to preserve competition by renting its tracks to other railroads, an approach that was used in the Union Pacific-Southern Pacific merger that was approved by federal regulators on July 3.
``It looks like Norfolk Southern is surrendering,'' said John W. Snow, chairman of CSX, as he got out of a car (borrowed from Conrail), arriving for an interview.
By calling for a breakup of Conrail, Norfolk is signaling that it ``has given up on its bid to buy the company,'' Snow said.
Snow said the CSX-Conrail merger would control only 58 percent of Eastern cargo, no where near the 70 percent Norfolk Southern alleged.
He said the CSX-Conrail merger would not diminish competition. He noted that the entire railroad industry has revenues of only $30 billion, and that the combined CSX-Conrail rail units would have only $9 billion of that total.
By contrast, he said, truck freight is a $450 billion industry.
The total revenues of a merged CSX-Conrail, which would include an ocean-freight carrier, a barge line and other logistics companies, however, would be $14 billion.
The two chief executives, in their separate interviews, sparred like campaigning politicians.
Snow was asked about a Norfolk Southern document alleging that Conrail Chief Executive David M. LeVan agreed to the merger just to get a pay raise. The merger agreement links LeVan's compensation to 90 percent of Snow's.
Norfolk Southern says that the merger would boost LeVan's pay from $539,728 to $2.3 million annually.
Snow countered by asking whether Norfolk Southern would keep Conrail employees at their present salaries, which are generally lower than the industry average. ``That's no way to make a merger work,'' Snow said.
Goode noted that Norfolk Southern leads the industry in virtually every way railroad performance is measured, including profitability. Thus, its proposed marriage with Conrail would produce better service for the regions and customers Conrail now serves.
Snow countered that argument by reciting a long list of areas where Norfolk claims leadership and saying, ``it sounds like they are saying to Conrail employees, `We're the best at everything. We're not interested in what you have to say. We're going to show you how to run a railroad.' ''
On the other hand, Snow said CSX is ``offering a marriage of equals . . . We're looking to learn from them while they learn from us. That culture will unlock the value for shareholders that exists in these two companies.''
KEYWORDS: MERGER NORFOLK SOUTHERN CORP. CSX CORP. CONRAIL
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