NORFOLK, Va. -- Norfolk Southern Corp. is negotiating with CSX Corp. to buy as much as 60 percent of Conrail Inc.'s assets, which would require Norfolk Southern to pay $525 million more than originally expected, according to a source close to the negotiations.
Earlier this month, CSX agreed to buy Conrail for $10.5 billion and split the Philadelphia-based railroad's assets with Norfolk Southern, creating two transportation giants that would dominate freight shipping in the East.
Norfolk Southern was originally expected to acquire about 55 percent of Conrail in the split, but the agreement has been honed in recent days to give Norfolk Southern a greater share of the railroad's assets, the person said. As a result, Norfolk Southern could end up paying about $6.3 billion for its share, and CSX would pay about $4.2 billion.
Norfolk Southern yesterday filed with the Securities and Exchange Commission to sell as much as $3 billion in debt securities, preferred stock, depositary shares and/or common stock.
The company could now raise up to $4.3 billion, when previously registered securities are taken into account. Norfolk Southern said in the filing that it plans to spend the bulk of the proceeds from the securities sale to purchase Conrail shares, preferred stock and other assets.
Negotiators for CSX and Norfolk Southern are meeting in Charleston, S.C., to hammer out the final details of the agreement to split Conrail, which is expected to be announced in the next week.
Analysts and shareholders said they weren't surprised by the shift, because Norfolk Southern has more cash than CSX and its rail system is more compatible with Conrail's.
"Norfolk Southern's tracks don't overlap as much with Conrail's as CSX's do, so they'll be able to take more assets without causing problems," said Peter Gleason, a senior research analyst at Institutional Shareholder Services, which consults some of Conrail's largest shareholders. "And Norfolk has always been willing to pay more."
Bob Fort, Norfolk Southern's vice president for public affairs, declined to comment on the negotiations.
While most of the major issues have been resolved, "there are little things that are still being worked out," Fort said.
CSX and hostile bidder Norfolk Southern spent months fighting for control of Conrail, before agreeing to sit down and negotiate in January.
The battle reached an impasse on Jan. 17, when Conrail shareholders voted down a proposal to exempt the railroad from a Pennsylvania law that blocked CSX's original agreement to buy Conrail. Many shareholders began demanding that Conrail consider Norfolk Southern's higher offer.
Under the agreement being negotiated, both CSX and Norfolk Southern would gain access to New York and New Jersey ports, through which billions of dollars of freight move each year, the person familiar with the negotiations said. Further, Conrail's two main lines that run east from Chicago and St. Louis would be divided between the two, the person said.
CSX would get the Conrail line that runs to Boston from St. Louis, while Norfolk Southern would acquire the line from Chicago that runs to Pittsburgh and Philadelphia, the person said.
Pub Date: 3/28/97