Chessie System Inc, and Seaboard Coast Line Industries have opened negotiations on a possible combination that would create the largest railroad system in the country, the two companies revealed late yesterday.
A three-paragraph, joint press release said "exploratory discussions involving a possible affiliation" have begun, and Chessie already owns slightly less than 5 percent of Seaboard's common stock.
Public relations officials at both companies said the formal announcement had been prepared by lawyers and that the spokesmen had been instructed to provide no additional details.
However, informed sources said Chessie had been buying Seaboard stock over recent months, and Chessie Chairman Hays Watkins said in a Railway Age interview earlier this year that his company had conducted internal studies on possible combinations with most major rail firms in the nation.
Seaboard stock also has been an attraction for the Southern Pacific Co., a major West Coast railroad firm that currently owns 9.6 percent of Seaboard common in the wake of earlier merger talks that Seaboard ended.
After talks on possible creation of a transcontinental Seaboard-Southern Pacific were ended, Sopac continued to buy shares of Jacksonville-based Seaboard until the Interstate Commerce Commission issued a 70-day "cease and desist" order on Aug. 8 prohibiting further share purchases.
Seaboard, which opposed a combination with Sopac as not in the interests of the public or its shippers, charged that the Southern Pacific stock purchases violated federal law, but Sopac said it has no intention at this time of seeking control over the East Coast line.
A partnership of Seaboard and Chessie would create a giant rail network with 27,600 miles of routes from Philadelphia and Baltimore south to Miami and New Orieans and to St. Louis and Chicago in the Midwest, involving 20 states, D.C. and Ontario Province of Canada.
Chessie itself is a holding company for three railroads - the Baltimore & Ohio, Chesapeake & Ohio and Western Maryland.Under the name of "Family Lines," Seaboard operates two major rail systems - the Louisville & Nashville and Seaboard Coast Line (Seaboard and Atlantic Coast Line merged in 1967).
Railroad industry analysts said yesterday that the Chessie-Seaboard talks could end up in an agreement to merge or with an acquisition of one company by the other.
Chessie's Watkins recently has emphasized a new strategy of developing monrail businesses that will add to earnings, and he told Forbes magazine last month that he would not object to being a "junior partner" in a business combination.
A combined Chessie-Seaboard most likely would provide continued independent operation of various rail subsidiaries, as Cleveland-based Chessie does now with its three lines, analysts said.
Although the companies' lines now meet in Richmond and at several points in kentucky or Ohio, there is virtually no overlap in service. The firms employ some 75,000 workers, mostly in railroad operations.
In addition to transportation, Chessie owns 350,000 acres of timber, 2 billion tons of coal, extensive real estate holdings and the Greenbrier resort at White Sulphur Springs, W. Va. A Seaboard subsidiary own daily newspapers in Jacksonville and St. Augustine, as well as several weeklies.
Seaboard is the larger of the two railroad businesses, with 16,000 miles of routes that produced revenues of $1.7 billion last year. Chessie operates over more than 11,000 miles of routes and reported revenues of $1.5 billion in 1977.
Merger talks and rumors in the railroad industry have been widespread over the last two years following congressional approval of legislation that encouraged some types of mergers and required the ICC to speed decisions on proposed combinations.
Although Seaboard dropped its earlier talks with Southern Pacific, and Southern Railway failed to reach any agreement on a proposed combination with the Missouri Pacific, a number of other combinations are being considered actively and many proposals are being discussed in private. Among the proposed mergers:
Washington-based Southern is talking with IC Industries about possible acquisition of the Chicago company's Illinois Central Gulf Railroad.
Burlington Northern and the Frisco have agreed on a merger that the ICC is studying.
Norfolk & Western and Chessie have proposed joint acquisition of the Detroit, Toledo and Iron Railroad - and are facing a competing bid by the Grand Trunk Western.
Union Pacific Corp. is considering acquistion of some lines between Butte, Mont, and the Pacific Northwest from the bankrupt Milwaukee Road.