Directors of Chinese System Inc. and Seaboard Coast Line Industries are scheduled to meet separately today, and they are expected to ratify plans for a tentative merger agreement that would create the nation's largest rail system.
Informed sources said both companies are enthusiastic about the proposed combination, which would merge SCL's Seaboard and Louisville & Nashville systems with Chessie's three rail properties - the Chesapeake & Ohio, Baltimore & Ohio and Western Maryland - into a 27,600 mile network from the Gulf of Mexico to Ontario Province of Canada.
Wall Street analysts and industry spokesmen said they expect the companies to approve a plan under which Seaboard would be merged into a new company, wholly owned by Chessie.
The consensus yesterday was that 1.3 shares of the new company would be exchanged for each common share of SCL, and that Chessie owners would get one share of the new firm for each share they own.
Reportedly, the price of shares to be exchanged would be $32 apiece. Since each SCL share would be exchanged for 1.3 shares of the new firm, the value per share of current-stock would exceed $41 for a total transaction of some $600 million. There are about 14.6 million shares of SCL outstanding.
Earlier this year, SCL abruptly dropped tentative merger talks with Southern Pacific Co., which, which had hopes of creating the nation's first truly transcontinental railroad. Sopac, which has routes from New Orleans to the West Coast, reportedly was prepared to offer $35 a share for SCL stock.
There was some speculation among Wall Street analysts yesterday that Southern Pacific may decide to increase its offer for SCL stock, of which it already owns about 10 percent. SCL won an Interstate Commerce Commission order earlier this year to bar Sopac from acquiring additional SCL shares.
Officials of the railroad companies declined to comment on the reports last night; Chessie would not even confirm that a board meeting is to be held.
Seaboard is the larger of the two rail firms with 16.000 miles of routes and annual revenues of $1.7 billion. Chessie railroad subsidiaries operate over 11.000 miles of routes with annual revenues of some $1.5 billion.
When "exploratory discussions involving a possible affiliation" between Chessie and SCL were announced earlier this year, Chessie revealed that it had purchased about 5 percent of Seaboard's common stock.
Seaboard shares have been increasing in price during recent New York Stock Exchange trading sessions, apparently becauseof rumors about an imminent announcement on the proposed merger.
Yesterday SCL closed up $1 a share at $27.50. Seaboard's stock jumped 2 7/8 or 11.2 percent, in trading last Friday, after hitting a yearly low the previous week of 23 5/8. Earlier this year, SCL was quoted as high as 35 7/8. Chessie closed yesterday at 26 1/8 down 1/4 for the day.
Chessie reportedly began buying SCL shares earlier this year and Chessie Chairman Hays Watkins said his company has conducted internal studies on possible combinations with most major rail firms in the nation.
SCL and Chessie railroads have routes that stretch from Philadelphia and Baltimore south to Miami and New Orleans, and west to St. Louis and Chicago. The railroads' lines serve 20 states and serve two major concentrations of coal fields - in West Virginia and Eastern Kentucky.
The two companies have about 75,000 employes, but their rail service does not overlap. Still, analysts said the proposed merger could be successful only if Chessie moves slowly to absorb the SCL system. SCL's profits have been depressed in recent months.
In a related development yester-bankruptcy of a Northeast railroad, SCL's plea for a delay in complying with an ICC order, directing Seaboard Coast Line to furnish more locomotives to the Louisville & Nashville.
Responding to complaints from coal mine officials in Kentucky in September, the ICC ordered SCL to send 100 locomotives to the L&N by Dec. 15. SCL will appeal the order, by the Court of Appeals in New Orleans, while complying with ICC requirements that engines be supplied L&N in increments (25 as of yesterday).
Meanwhile, the federal government moved yesterday to prevent imminent bankruptcy of a Nogtheast railroad, the Delaware & Hudson.
The U.S. Railway Association approved a $2.7 million loan to the D&H owned by a subsidiary of the Norfolk & Western, bringing federal assistance to date to $30 million.
Secretary of Transportation Brock Adams had opposed the further aid and advocated instead that D&H go into bankruptcy. "Federal funds should not be used to avoid the reorganization of a private company unable to sustain itself," Adams said in a letter this week to the Independent Rail Association, a government finnacing and monitoring agency.
Recent legislation provided two methods of giving aid to the financially troubled D&H, most of whose lines serve New York State and north-east Pennsylvania. One method would be the aid approved yesterday and the second would be loan guarantees to a bankrupt firm.
Bankruptcy would lead to a quicker reorganization and less of a drain on U.S. money, Adam said.