CSX and Norfolk Southern Corp. are close to a deal that would end their four-month high-stakes battle and split Conrail's 11,000 miles of tracks.
The latest arrangement calls for CSX to pay another $1 billion, or $10.5 billion total in cash, for Conrail, matching Norfolk Southern's hostile bid. Sources said that CSX, after acquiring Conrail, would sell about half of Conrail's lines in the Northeast to Norfolk Southern.
Top executives of the three railroads have been meeting secretly for nearly six weeks to resolve the bidding. The first official sign of a breakthrough came yesterday, when Conrail's board of directors, after months of refusing, agreed to authorize talks with CSX on a deal that would pay shareholders $115 a share in cash.
In a statement, the Conrail board expressed disappointment that its original plan to merge with CSX could not be attained.
Neither Conrail nor CSX would comment further on the board's decision, but Norfolk Southern Chairman David R. Goode issued a statement indicating that a new arrangement clearly was pending.
"Norfolk Southern is hopeful that CSX and Conrail will quickly reach a definitive agreement that would permit CSX and Norfolk Southern to work out a plan to restructure the rail transportation system in the East into combined Conrail-NS and Conrail-CSX systems."
The breakup of Conrail would represent the demise of one the federal government's most ambitious bailouts. In 1976, at a cost of $7 million to taxpayers, Conrail was formed out of several bankrupt railroads, including the Penn Central. It was sold to the public 10 years later for $1.2 billion.
The Conrail and CSX boards announced an $8.4 billion merger agreement in October. But Norfolk Southern staged an aggressive effort to thwart the deal and increased the bid. It argued that a Conrail-CSX merger would be anti-competitive because the combination would monopolize rail freight in the Northeast.
Conrail stockholders subsequently resisted the takeover by CSX, holding out for a higher offer.
Sources say the deal between Norfolk Southern and CSX should ease many of Maryland's fears about a CSX-Conrail merger, including the potential loss of two Class I railroads in the state. In addition, an agreement between the two to carve up Conrail would minimize job losses, particularly in Western Maryland, where hundreds of CSX workers are employed.
Yet the agreement does little to bring more rail competition to many areas of Maryland, including the Eastern Shore and central Maryland, and it raises new concerns about balancing passenger and freight business in the Northeast rail corridor, which will become increasingly busy.
"It's positive from the standpoint of addressing our No. 1 concern that we have two Class I railroads and that we maintain a level of passenger rail service through MARC," Maryland Secretary of Transportation David L. Winstead said yesterday. "But there are concerns."
Both CSX and Norfolk Southern would gain good Conrail routes that link their north-south and east-west routes to the critical New York market. In Maryland, CSX would retain its east-west route, along the old Baltimore & Ohio line, which runs through Western Maryland to Baltimore.
Norfolk Southern would, for the first time, gain access to Baltimore by taking over Conrail's current lines from Pittsburgh to Harrisburg, Pa., and then to Baltimore.
"It's a break-even [deal] for Maryland, maybe even a little better," said James Bronkenhoefer, national legislative director for the United Transportation Union, which represents railroad workers.
Less certain, however, is the potential impact on passenger service along the heavily traveled Northeast. Railroads have long been pushing to achieve more of a balance between freight and passenger service in the region, where 80 percent of the rail traffic is passenger trains.
"We don't know enough yet about how the trains will operate to jump for joy or cry in our beer," one Maryland official said.
State officials met early yesterday to analyze the Norfolk Southern-CSX deal. Maryland currently is served by Conrail and CSX.
Sources said it could take months to work out details of the Norfolk Southern-CSX agreement. The arrangement must be approved by the Surface Transportation Board, the federal agency that oversees the railroad industry.
Most observers believe the deal will be approved by the STB, which has insisted that the merger must provide better rail competition in the East. The proposed plan calls for Richmond, Va.-based CSX and Norfolk-based Norfolk Southern each to keep one of Conrail's major routes into New York.
The fight began in October, when CSX announced plans to acquire Conrail for $9.4 billion in cash and stock. Norfolk Southern countered a week later with its $10.5 billion all-cash offer.
News of a possible resolution of the merger fight sent the stock of all three companies up sharply yesterday on the New York Stock Exchange. Conrail gained $7.125 to $111.625; CSX Corp. rose $2.875 to $49; and Norfolk Southern added $2.75 to $93.875. In October, Conrail's stock was trading at $71 a share.
Pub Date: 3/04/97