Conrail sale may spare port service Norfolk Southern, CSX deal could retain 2 lines for Baltimore

'Basically, a poker game'

Companies may sell each other track, no matter who wins bid

November 05, 1996|By Jay Hancock | Jay Hancock,SUN STAFF

In a possible shred of good news for Baltimore's port, Norfolk Southern Corp. and CSX Corp. are discussing splitting the spoils no matter who wins the contest to buy Conrail Inc., the railroad companies said yesterday.

That might help ensure continued service to Baltimore from two rail-freight services instead of one.

If CSX buys Conrail, it might turn around and sell some of Conrail's track or other assets to Norfolk Southern, said CSX spokesman Vance Richardson. And vice versa if Norfolk Southern buys Conrail, said a Norfolk Southern spokesman.

Neither railroad would specify which piece of Conrail's network it would like to pluck from a merged Conrail. But Richardson said the talks disclosed yesterday related to maintaining "competitive access" in markets -- Baltimore is one -- that are served by both CSX and Conrail.

Translation: A merged CSX/Conrail would let Norfolk Southern into some of its exclusive markets by selling track or passage rights to Norfolk Southern trains.

"Where there are shippers who are currently served by both Conrail and CSX, where after the merger they would be served by just one railroad, we're committed to providing access to two railroads," Richardson said.

Maryland officials have worried that a monopoly grip by CSX/Conrail might raise shipping rates through Baltimore, depress cargo volumes and further hurt Baltimore's port, which has been losing business to Norfolk, Va.

CSX has said all along that it would furnish competitive access in places where it overlaps with Conrail. But the fact that it is negotiating with Norfolk Southern on access now -- before any merger is completed -- boosts chances that the access would be meaningful and not merely in name, transportation officials said.

Some Wall Street analysts have always assumed that neither Norfolk-based Norfolk Southern nor Richmond, Va.-based CSX would wind up swallowing all of Conrail.

"Throughout time, both companies' positions have always been that Conrail should be broken up and divided up between both of them," said Jeff Medford, who covers railroads for William Blair & Co. of Chicago. "It's basically a poker game, and the question is, who wants to be the dealer? It's my opinion that nobody is going to own the whole deck of cards by the time they're finished."

Besides in Baltimore, CSX and Conrail overlap in much of the Midwest. CSX's Richardson declined to say whether Baltimore was included in the access discussions with Norfolk Southern.

But Norfolk Southern is interested in buying into much more than the places now served by both Conrail and CSX, said analysts and industry officials. It wants better access to Northeast ports, and if CSX buys Conrail, Norfolk Southern may try to buy one of Conrail's routes from New York or another port to the Midwest, they said.

Norfolk Southern can send loads to the Northeast now, but it must pay expensive "interline" charges to Conrail.

Baltimore will face huge challenges even if it gets Norfolk Southern service after a Conrail/CSX marriage. Norfolk Southern would continue to funnel most of its seabound freight through Norfolk, industry officials believe, and Conrail/CSX would use Philadelphia or New York.

While transportation officials pored over track-route maps yesterday, Wall Street focused on something else: Did the talk about divvying Conrail mean that Norfolk Southern is abandoning its $9.15 billion, $100-a-share bid for the whole company?

At first, investors apparently thought the answer was yes. They dumped Conrail stock, sending its price plunging by more than $8, to $87 a share. But Norfolk Southern issued another statement saying that it remains "fully committed" to buying Conrail, and the stock recovered, closing at $93.63 at the end of the day.

"I think the market jumped to a very early conclusion: 'Oh, they're going to come to a compromise,' " said Renee W. Johnson, analyst for Wheat First Butcher Singer in Richmond. "I think there is room for a compromise, but it's still going to be a long time in coming."

One possibility, she said: CSX could take cash raised from a garage sale to Norfolk Southern and use it to boost its own $8 billion offer for Conrail. CSX, which bid for Conrail first, two weeks ago, is offering $92.50 in cash for 40 percent of Conrail's stock and CSX shares worth about $83 each for the other 60 percent.

In other news yesterday, Conrail agreed in federal court in Philadelphia to delay a "poison pill" plan that would create a rash of new Conrail shares and make Norfolk Southern's hostile takeover too expensive.

Because Norfolk Southern has sued to block a Conrail-CSX match, the two "were forced to postpone the triggering of this outrageous lockup device," Norfolk Southern said in a prepared statement.

Pub Date: 11/05/96

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