A movement to consolidate the nation's Midwest and Western railroads into fewer but longer transportation networks has been joined by Burlington Northern, Inc., and the St. Louis-San Francisco Railway Co. (popularly known as Frisco).
Following the conclusion of exploratory talks, officials of the two firms announced an agreement in principle for the St. Paul-based Burlington to acquire Frisco.
BN chairman Louis W. Menk and Frisco chairman Richard C. Grayson said a merger application will be filed before the end of this year with the Interstate Commerce Commission, which must approve such combinations.
Although merger proposals historically have become mired in regulatory lag because of opposition by various rail competitors - an abbortive Rock Island-Union Pacific combine was before the ICC for more than a decade - recent federal legislation requires the agency to act within two and a half years.
If the BN-Frisco merger is approved by stockholders of the two firms and by the ICC, ultimately, it would extend the Burlington's status as America's largest railroad in terms of route miles.
The Burlington - itself the result of a historic combination of the old Northern Pacific, Great Northern and Chicago, Burington & Quncy in 1970 - operates over 27,000 miles of track in 19 Midwest and Western states and two provinces of Canada.
Frisco serves nine central, southeastern and southwestern states over a 4,700-mile network. Common points now served by the two ines include Dallas-Ft. Worth, St. Louis and Kansas City. The merger is a so-called "end-to-end" combination in that the two firms do not now operate parallel services in competition with the other.
Last year, BN earned $73 million $5.69 a share) on revenues of $1.9 billion while Frisco earned $12 million ($4.61) on revenues of $321.5 million.
Under merger terms announced by the companies, each share of Frisco common would be exchanged for .95 share of BN common and $12.50 of a newly created 8.5 per cent non-voting preferred stock. A sinking fund would commence in the sixth year, designed to retire the preferred stock in equal annual amounts by 2000.
With 2.6 million shares of Frisco common outstanding, the merger would be valued at about $100 million.
Both Burlington and Frisco have holdings outside of railroading. BN owns extensive natural resources and real estate while Frisco owns half of the New Mexico and Arizona Land Co., based in Phoenix.
Menk and Grayson said their proposed merger would open up single-line routes into the southeast and southwest and provide for "substantial economies." The combination also will offer new competitive pressures for some railroads; a BN-Frisco could move resources directly from the Far West to Alabama, for example.