Battle over Conrail shifts to Congress Cummings says either merger deal could be hard on Maryland

November 20, 1996|By Suzanne Wooton | Suzanne Wooton,SUN STAFF Bloomberg Business News contributed to this article.

WASHINGTON -- The politically charged battle to acquire Conrail Inc. moved here yesterday, with a Maryland congressman complaining that CSX Corp.'s deal would seriously jeopardize competition in the state.

In the first congressional hearing on the Conrail battle, Democratic Rep. Elijah E. Cummings of Baltimore said proposals by both CSX and Norfolk Southern Corp. to take over Conrail had serious implications for Maryland's economy, work force and passenger rail service.

But the likely impact of a CSX-Conrail merger in Maryland appears much clearer because both systems now serve the state; in contrast, Norfolk Southern offers little rail service here.

"A Conrail-CSX merger would leave several areas of the state of Maryland with a single Class 1 railroad, which would seriously jeopardize the competitive edge of most of Maryland's business community, including the port of Baltimore," Cummings said during the hearing of the House Committee on Transportation and Infrastructure.

Conrail and CSX, two of the three major Eastern railroads, announced an $8.5 billion merger plan in mid-October, a deal that would result in a single-line rail system covering a 29,000 mile-network over 22 states. A week later, Norfolk Southern launched a $9 billion hostile takeover bid, which it has since increased to $10 billion.

Both the Surface Transportation Board, the federal regulatory agency that oversees railroads, and the House committee will conduct a series of hearings on the takeover. Approval on any merger is required by the STB as well as company shareholders.

In Philadelphia, a federal judge last night rejected Norfolk Southern's bid to block CSX's $8.5 billion acquisition of Conrail Inc., dealing a major setback to Norfolk Southern's bid.

After two days of testimony, U.S. District Judge Donald VanArtsdalen ruled that CSX could proceed with its tender offer for Conrail's shares, which expires today. VanArtsdalen said CSX's bid was not "unfair, coercive or unlawful" as Norfolk Southern had claimed in its lawsuit.

The ruling, which was expected by the financial community, makes it likely that CSX will get the 19.9 percent of Conrail's shares that it says it needs to proceed with the merger.

Norfolk Southern officials weren't immediately available for comment on whether the company will appeal the ruling.

The boards of CSX and Conrail have approved the deal, insisting that they are a better strategic fit than Conrail and Norfolk Southern. But that agreement has pitted Conrail stockholders against their own board, because Norfolk Southern is bidding $110 a share in cash, or $10 billion.

CSX's latest cash-and-stock deal is valued at about $8.5 billion, but CSX executives who testified at the congressional hearing yesterday hinted that that offer might be increased.

CSX and Norfolk Southern have notified the STB that they intend to file formal merger applications in February. The regulatory process is expected to take nearly a year.

The battle for Conrail could become one of the rare instances in which two railroads have filed competing applications.

Yesterday, David M. Konschnik, director of the Surface Transportation Board's Office of Proceedings, told members of the House committee that the STB would not be swayed by whether the bid is friendly or hostile.

The board could reject a merger that has been approved by stockholders or approve one that has not, he said, or it could reject both merger proposals. If it approves a merger, the STB is likely to impose certain conditions, such as a requirement for one side to grant track rights or to divest itself of parallel tracks.

The efforts to take over Conrail raise unique issues, in part because Conrail was created in 1973 by the federal government, which invested more than $7 billion as it assembled the old Penn Central and a handful of other bankrupt railroads. In 1987, Conrail was sold to the public for $1.3 billion.

"Taxpayers still have a $6 billion investment in Conrail," Committee Chairman Bud Shuster, a Pennsylvania Republican, said yesterday. "There is concern that the public at least not be harmed.

"It would be a shame if these merger proposals resulted in a loss of jobs for many railroad workers only to line the coffers of a few high-priced executives," said Shuster, whose district includes Altoona, Pa., where Conrail operates a large locomotive and repair shop.

The outcome of the fight will affect more than 75,000 railroad workers with CSX, Norfolk Southern and Conrail. In the past, rail mergers, such as recent large ones in the West, have cost thousands of jobs.

Pub Date: 11/20/96

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