Collision course Feud: Rivals CSX and Norfolk Southern are locked in a high-stakes battle to buy the 11,000-mile Conrail system. The bad blood between the railroads dates back more than a decade.

November 10, 1996|By Suzanne Wooton | Suzanne Wooton,SUN STAFF

Perhaps it was inevitable -- a dramatic odd-man-out duel between two longtime railroad rivals over Conrail, the jewel of the Northeast.

The spoils are indeed rich. If CSX or Norfolk Southern succeeds in swallowing the 11,000-mile Conrail system whole, it would become the indisputable rail power of the East, dwarfing its competitor and locking up the lucrative Northeast.

"The stakes are high. The stakes are real high," acknowledged Thomas E. Hoppin, vice president of communications for Rich--mond-based CSX Corp. "People realize that two doesn't go into three real well."

The continuing battle is the latest chapter in a decade-long fight over Conrail. This time CSX fired the first shot with a surprise $8.4 billion cash and stock agreement on Oct. 15 to buy Philadelphia-based Conrail. Norfolk Southern Corp. issued a terse statement saying it would study its options and a week later launched an all-cash bid -- for $1 billion more.

Since then, the two have traded a series of brief, sharply worded barbs from their Virginia headquarters. CSX has increased the 40 percent cash part of its offer to $110 a share, only to see Norfolk Southern shoot back with a $110-a-share all-cash bid.

Meanwhile, dozens of high-priced Washington, Philadelphia and New York lawyers are waging the legal battle while a small army of lobbyists aggressively buttonholes politicians, business leaders and labor leaders. In Maryland, that effort has stretched from the coal fields of Cumberland to the State House in Annapolis.

"There are a lot of constituencies that must be pacified," said George E. Hoffer, a transportation expert and professor of economics at Virginia Commonwealth University in Richmond.

The all-out effort by both rail systems is not surprising, given the prize. Conrail -- established by the federal government in 1973 out of the ruins of Penn Central and five other bankrupt railroads -- would give either railroad a system stretching from Canada to Florida.

But the feuding is heightened by the two companies' protracted fight over Conrail, dating to 1985, when CSX spearheaded the movement that squashed Norfolk Southern's deal to buy Conrail for $1.2 billion from the government. Conrail was later spun off as a private company.

"When CSX sabotaged Norfolk Southern, that created such animosity that they couldn't even work together," said Hoffer. "There's clearly bad blood, no matter what they say."

Separated by 75 miles of Interstate 64, the two Virginia-based companies have distinctly different corporate cultures. Norfolk Southern is a low-key, close-knit company that operates with an almost military-like efficiency. CSX, while also conservative, is more outward and political.

Norfolk Southern, along with its forerunners, has been run by old-line Virginians, such as brothers Robert and Graham Claytor. By contrast, CSX, which considers itself the "father of railroad presidents," has swapped top talent with a number of railroads, including Conrail.

In simplest terms, says CSX Chairman and Chief Executive John W. Snow, Conrail opted for a deal with CSX because "it's a better fit."

"The sort of approach and mind set they [Norfolk Southern] bring to the merger is 'we know best and we'll fix you guys so you can be just as tall and vigorous and handsome as we are,' " said the politically knowledgeable head of the East Coast's largest railroad.

"They've got a lot to be proud of, but it's not a company that's going to merge their culture easily with another," he added. "With that pride goes a sense of rigidity and inflexibility."

Yet, Norfolk Southern, the second-largest railroad on the East Coast, says its overtures to Conrail were not heavy-handed -- until CSX's crafty deal forced it to launch a hostile takeover.

"I don't see us as overbearing," said L.I. "Ike" Prillaman, Norfolk Southern's executive vice president of marketing, during a recent interview in his 19th-floor office overlooking Norfolk's Elizabeth River.

Kept talking

"We tried to not be overly aggressive, not be pushy, not muscle our way into their [Conrail's] affections," he said. "We knocked on their door periodically and said, 'Would you like to talk? Would you like to know where we are?' There was one conversation lately that was 'Would you like a number?' "

Indeed, Prillaman said, Norfolk Southern's own origins in the 1982 merger of the Norfolk & Western with Southern Railway shows that the company has a history of preserving the best of both cultures.

That merger was precipitated by the combination of the Chessie System and Seaboard Coast Line to form CSX in 1980.

"Without the merger, CSX would have eaten us alive," Norfolk Southern's venerable Chairman Robert Claytor once said.

In the growing world of intermodal transportation -- ships, trains and trucks connecting seamlessly -- neither Norfolk Southern nor CSX is strictly a railroad. Both companies have acquired trucking lines to offset competition from railroads' biggest enemy.

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