THE VIRGINIAN-PILOT
Copyright (c) 1997, Landmark Communications, Inc.
DATE: Wednesday, January 22, 1997 TAG: 9701220409
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 98 lines
Norfolk Southern, CSX and Conrail may be inching toward talks to resolve their four-month battle for control of Conrail.
In a letter sent Tuesday, Norfolk Southern Chairman David R. Goode invited his counterparts at CSX Corp. and Conrail Inc. to talk with him.
CSX Chairman John W. Snow said Tuesday that he and Conrail Chairman David M. LeVan were ready to talk if Norfolk Southern Corp. really is.
``If he wants to talk, we're prepared to talk,'' Snow said.
He even said that CSX and Conrail were preparing some ``attractive'' offers for Norfolk Southern as part of the merger application they will file with the federal Surface Transportation Board.
The exchange comes a day after Linda Morgan, the STB's chairman, said that the board wants competitive balance in the East.
Richmond-based CSX and Philadelphia-based Conrail have agreed to a $9.5 billion merger. A jilted Norfolk Southern Corp. is trying to woo Conrail away from CSX with a $10.3 billion cash offer. Conrail shareholders stalemated the brawl when they rejected the merger with CSX in a vote Friday.
If the railroads cannot negotiate a settlement, Morgan said the STB will likely impose a compromise that splits the East.
While Snow wouldn't discuss specifics, he said CSX and Conrail are prepared to be responsive to the board's concerns.
Snow's comments may indicate a willingness to go beyond what CSX and Conrail have been saying, which was that they were only willing to preserve rail competition in markets that would lose it if they merge, such as Philadelphia and Pittsburgh. However, that left out major markets such as New York where Conrail has enjoyed a monopoly for 20 years.
Norfolk Southern has said it's willing to open markets like New York to rail competition if its offer succeeds.
``Our application case will offer them more than their application will offer us,'' said Snow, referring to CSX's application to the Surface Transportation Board to merge with Conrail.
CSX and Conrail want to have the ``high ground'' on the competition issue, Snow said.
Both sides have said they are only willing to talk within the context of their respective offers for Conrail.
In his letter, Goode reiterated that Norfolk Southern was only willing to talk on the condition that Conrail shareholders get $115 a share out of any settlement as Norfolk Southern has promised them.
``We're not going to abandon our merger for the privilege of talking to them,'' Snow said.
However, Snow suggested that they could meet and talk without either side conceding defeat.
The question of competitive balance is difficult because of Conrail's monopoly access to Northeastern markets, including New York. That monopoly is rooted in Conrail's unique birth. Congress established Conrail in 1976 from the remains of six bankrupt railroads to preserve the nation's rail system.
The government later sold Conrail in a public stock offering after Congress spurned an offer from Norfolk Southern for it.
In his letter to Snow and LeVan, Goode wrote: ``The Conrail shareholders' vote last Friday places a responsibility on us to work out a rail structure in the East that will be in the long-term interests of all constituencies served by our companies. I believe that this can be accomplished if we sit down and try.
``I believe we can achieve balanced competition in the East with the greatest continuity in existing operations by combining Norfolk Southern and Conrail and providing to a competitor such as CSX its own routes into the Northeast/Mid-Atlantic region from the West and South, so that the result is competing networks of equivalent scope, scale and market access.''
Indeed, Norfolk Southern, in talks with various state railroad officials, has been suggesting the sale of several specific Conrail lines to CSX should it buy Conrail.
Those lines include one from Philadelphia to New York roughly parallel to Interstate 95 and a line from New York to Buffalo via Binghamton, N.Y., that connects with Greenwich, Ohio. Those sales would give CSX competitive access to and from New York both south and west.
While it isn't a specific divestiture plan, Norfolk Southern spokesman Robert Fort wouldn't deny that those were the lines Norfolk Southern has talked about selling.
Among the major lines Norfolk Southern wants to retain are a western route from Philadelphia to Chicago via Pittsburgh, another route from New York to Buffalo via Albany, N.Y., Conrail's lines in New England and a route from the Norfolk Southern/Conrail switching point in Hagerstown, Md., to New York.
Norfolk Southern and CSX had discussed jointly taking over Conrail in 1995 and breaking it up along similar lines before abandoning the idea.
After the current battle started in October, Goode and CSX's Snow met in Williamsburg one weekend to discuss breaking up Conrail. The talks failed to get off the ground, however; and Conrail, which wants to keep its franchise intact, extracted a promise from CSX that it would hold no such talks again without its OK.
Norfolk Southern also announced Tuesday that it will proceed with its offer to buy 9.9 percent of Conrail's stock since shareholders rejected the CSX merger in a vote Jan. 17. Shareholders will have until Feb. 4 to commit their shares to the Norfolk-based railroad's $115 a share offer. ILLUSTRATION: [Color Photos]
David R. Goode
CSX Chairman John W. Snow, left, and Conrail Chairman David M. LeVan
KEYWORDS: CONRAIL CSX NORFOLK SOUTHERN MERGER