DATE: Friday, March 28, 1997                TAG: 9703280604

SECTION: BUSINESS                PAGE: D1   EDITION: FINAL 

SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER 

                                            LENGTH:   67 lines

NORFOLK SOUTHERN INCREASES DEBT CAPACITY TO BUY CONRAIL

Norfolk Southern took another step Thursday toward acquiring a large portion of Conrail Inc. by increasing to $4.3 billion its capacity to raise cash through the sale of bonds.

The Norfolk-based railroad registered with the Securities and Exchange Commission to sell $3 billion of debt to finance the purchase. That adds to $1.3 billion it has already registered. Such so-called ``shelf registrations'' allow companies to sell bonds as needed.

Norfolk Southern is in the midst of negotiations with Richmond-based CSX Corp. to divide Conrail's northeastern freight rail network. Philadelphia-based Conrail, which had wanted to merge with CSX, agreed to be split in early March after a five-month takeover fight, under pressure from Norfolk Southern's richer bid, shippers and rail regulators.

Thursday's debt registration came on the heels of a report in The Wall Street Journal that said Norfolk Southern would acquire at least 57 percent of Conrail's routes and revenues for about $5.9 billion. CSX would pay $4.4 billion for its share, the report said, citing unnamed sources ``familiar with the situation.''

Neither Norfolk Southern nor CSX could confirm the Journal's report on Thursday.

``Negotiations are still under way and we have not reached an agreement,'' said Robert Fort, Norfolk Southern's spokesman. ``When we do we will announce it.''

The two railroads are expected to announce details of their planned division of Conrail next week. Bloomberg Business News reported that Norfolk Southern and CSX officials were meeting in Charleston, S.C., to hammer out the final details of their break-up plan.

The Wall Street Journal article said that Norfolk Southern will acquire Conrail routes that generate about $2.17 billion in revenue a year, while CSX will get lines that will add about $1.63 billion to its revenues. It also reported that Norfolk Southern will invest an additional $700 million upgrading neglected tracks and terminals.

A source familiar with the talks said that they are continuing and that none of the decisions is final.

If the report is true or close to the truth, it's no big surprise, said Anthony Hatch, a railroad analyst with NatWest Securities Corp. in New York.

Both sides have said they want to create a relatively balanced competitive rail system in the East. Rail regulators, who still must approve any railroad takeover, have indicated they prefer that scenario.

CSX is the bigger railroad, but its balance sheet is nowhere near as strong as Norfolk Southern's, so it makes sense that Norfolk Southern would take the bigger share of Conrail, Hatch said.

Norfolk Southern has already paid $943 million for a 9.9 percent stake in Conrail. Selling all the debt it has registered to buy Conrail, that would bring its spending on Conrail to nearly $5.25 billion.

Norfolk Southern may be planning to use some cash on hand to supplement the debt sale or it could sell some stock to raise more money.

Norfolk Southern and CSX have already agreed to an outline that gives them both certain Conrail main lines connecting west and south out of the Northeast. But a variety of issues, including shared routes, terminal access in major cities and finances, are still being worked out.

In New York Stock Exchange trading Thursday, Norfolk Southern shares tumbled 2 1/4 to $88 3/8, while CSX fell 1 3/4 to $46 3/8. Although the overall market was down, there may also be some concern about the price Norfolk Southern appears to be paying for its share of Conrail.

MEMO: Staff Writer Christopher Dinsmore can be phoned at 757/446-2271 or

e-mailed at (dins(AT)pilotonline.com) KEYWORDS: CONRAIL NORFOLK SOUTHERN CSX

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