THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Tuesday, January 21, 1997 TAG: 9701210217
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: STAFF AND WIRE REPORT
LENGTH: 114 lines
The chairman of the Surface Transportation Board, the federal agency that oversees railroads, says the board would prefer a negotiated settlement of the bitter battle for Conrail between Norfolk Southern and CSX. However, the board is prepared to impose a plan that would preserve competitive balance in the East by splitting it equally between the two rail giants, said Linda Morgan, the STB chairman.
What that likely means is that if the board makes the decision, neither Norfolk Southern Corp. nor CSX Corp. will win total control of Conrail Inc.'s lines.
Morgan carefully avoided discussion of specifics in the dispute between the two big Virginia-based railroads. But she laid out several principles that appear to rule out control of Conrail by either railroad.
The STB must approve any railroad merger. The powerful board's decisions can ignore any federal or state law, including antitrust law and state statutes, such as Pennsylvania's tough anti-takeover law, which Conrail and CSX have used in blocking Norfolk Southern's bid. The board can order a sale of stock and sale of any rail line involved in a merger.
When Conrail shareholders refused to accept the CSX merger in a Jan. 17 vote, they stalemated the battle for Conrail. If the railroads cannot work out a settlement, the STB will be called on to resolve the situation. Morgan's statements could be good news for Norfolk Southern, which has been trying to buy Conrail for more than a decade and was locked out by Conrail's plan to merge with CSX. The $9.4 billion CSX/Conrail merger was such a threat to the Norfolk-based railroad that it launched a competing bid for Conrail now worth $10.3 billion.
``We've consistently supported the proposition that there needs to be competitive balance in the East and it sounds like that's in accordance with the comments made by the STB chairman,'' said Robert Fort, Norfolk Southern's spokesman.
A Conrail spokesman declined to comment, but CSX said it's ready to talk.
``We've said all along that we're willing to meet with Norfolk Southern to resolve competitive issues so long as there's no preconditions to those talks,'' said CSX spokesman Thomas E. Hoppin.
Norfolk Southern has said it is willing to talk only in the context of its $115-a-share offer for Conrail.
Norfolk Southern and CSX are roughly equal competitors in the Southeast and Midwest. But both rely on Conrail to deliver freight to the Northeast, where Conrail has a monopoly on service to New York and other markets. If either wins Conrail, it will become the dominant Eastern railroad.
But Monday the STB's Morgan appeared to rule out such a scenario. She cited the board's previous decisions, particularly a ruling last year in the Union Pacific-Southern Pacific merger in which the board acted to preserve competition.
In the UP-SP case, the board added conditions to make certain that the West's other big railroad, the Burlington Northern-Santa Fe, would have access to enough traffic to ``ensure that it would be a strong competitor to UP-SP in the West,'' she said.
``Well, that's the same dynamic that you're going to have in the East,'' she said. ``The facts will be different, the arguments will be different, but the fact is that an argument is clearly going to get made that what we must do is ensure some sort of competitive balance in the East.''
Morgan said the board feels obliged to preserve competition so that the disadvantages of the merger do not outweigh its benefits.
Throughout its four-month effort to woo Conrail away from CSX, Norfolk Southern has consistently advocated finding a solution that creates two evenly balanced, competing railroads in the East, including New York.
CSX and Conrail have sent conflicting messages on the issue. CSX says it is willing to discuss ``competitive issues,'' while Conrail says it is only willing to discuss maintaining competition in the markets where competition would be eliminated by the merger, like Philadelphia.
The STB's Morgan was less clear about what remedies the board might impose. One question is whether the acquiring railroad must sell lines to the competition or whether ``trackage rights'' will suffice. Such rights allow one railroad to use tracks owned by the other.
Norfolk Southern has said repeatedly that trackage rights will not work in the East because the host railroad gives preference to its own trains and has no incentive for major capital expenditures to help its rival. Conrail managers, however, have argued that the STB solved competitive problems with the UP-SP merger with trackage rights.
Morgan cautioned that no one should assume that the board prefers trackage rights because of the UP-SP case. ``What I said was that divestiture in UP-SP was not the right way to go. Could there never be a case where divestiture would be appropriate? No,'' she said.
Morgan also skirted the question of whether the board might order the sale of Conrail lines into New York. In the UP-SP case, the board did not order that competitive service be ordered for shippers that did not have two-railroad service before the merger.
Again, she said, the board will decide such specific questions on a case-by-case basis.
``I think that what is important is how the board will define preservation of competition in the context of the record, the facts, the region and the arguments that are made,'' she said.
Still, Morgan said she would prefer that CSX, NS and Conrail reach a settlement. ``Certainly there is a trend, and not a negative one, for the parties to try to come together and work things out,'' she said. MEMO: Staff writer Christopher Dinsmore and Washington Post reporter Don
Phillips contributed to this report. ILLUSTRATION: Graphic
WHAT'S NEXT
When Conrail shareholders refused to accept the CSX merger in a vote
Friday, they stalemated the battle between Norfolk Southern and
Conrail. If the railroads cannot work out a settlement, the Surface
Transportation Board will be called upon to resolve the situation.
WHY IT MATTERS
The Surface Transportation Board must approve any railroad merger.
It can ignore any federal or state law, including the anti-takeover
law that Conrail and CSX have used to block Norfolk Southern's bid
for Conrail. The board can order a sale of stock and sale of any
rail line involved in a merger.
KEYWORDS: CSX CONRAIL NORFOLK SOUTHERN
MERGER