Southern Railway and the Norfolk & Western, two of the nation's most profitable railroad companies, announced yesterday that they have begun talks on a proposed merger.
Such a combination would create a rail system with more than 19,000 route miles from New Orleans to the Canadian border.
The decision was seen as a dramatic step to counter any potential competitive edge that Chessie System Inc. and Seaboard Coast Line Industries might gain from their own proposed merger, now pending before the Interstate Commerce Commission.
Washington-based Southern and N&W, of Roanoke, have warned that a Chessie-Seaborad combination would alter substantially the competitive situation in the rail industry throughout the Midwest and Southeast to their detriment.
In petitions to the ICC, the Washington and Roanoke firms have asked that certain routes of Chessie and Seaboard be sold to Southern & N&W, as a requirement in any merger approval.
A combination of N&W and Southern, respectively the nation's eighth and ninth largest rail firms, would create a rail giant east of the Mississippi with nearly 50,000 employes and annual revenues of $2.5 billion.
But the Chessie and Seaboard merger, which would be called CSX Corp., would create an even larger company. Chessie owns the Baltimore & Ohio, Chesapeake & Ohio and Western Maryland railroads, as well as extensive real estate and coal properties and the Greenbrier resort in White Sulphur Springs, W. Va. Seaboard groups together under its "Family Lines" banner the Seaboard Coastline (representing an earlier merger of the Seaboard and Atlantic Coast Line) and the Louisville & Nashville.
SCL is the fifth largest U.S. rail firm and Chessie ranks seventh. Together, their lines would create a 27,000 mile system in 20 states and Canada-biggest in the U.S.-through a proposed stock exchange valued at $1 billion. Chessie divides its headquarters operations between Cleveland and Baltimore, while SCL is managed from Richmond and Jacksonville. Maryland and Virginia are engaged in intense lobbying efforts to get the proposed rail combine's headquarters located in Baltimore or Richmond.
In their announcement yesterday, Southern President Stanley Crane and N&W President John Fishwick said only that they had initiated "joint studies to determine the feasibility and advisability of placing N&W and Southern under common corporate ownership and control."
The "common ownership and control phrase apparently indicates that executives of the two firms envision a holding company arrangement that would operate two separate rail subsidiaries, rather than an actual merger of both firms into a unified system. One issue to be resolved is the fate of the 1,673-mile Delaware & Hudson, an unprofitable railroad owned by N&W that serves New York State and northeastern Pennsylvania.
Crane and Fishwick indicated they expect representatives of their firms to meet in the near future "to explore the feasibility of various approaches to bringing together under common control the organizations "which they represent. They emphasized that merger talks are likely to continue for some time.
Southern has failed twice in recent years to find a marriage partner after beginning courtships with both the Missouri Pacific and Illinois Central Gulf, either one of which would have provided much-desired direct routes into the Midwest.
Southern now extends westward to Memphis, New Orleans and St. Louis, but lacks a route into the Chicago rail hub for direct connection to railroads that serve the Pacific Northwest. In an era of increasing commerce between the northwestern and southeastern states, N&W serves not only Chicago but Omaha, the auto manufacturing center in Detroit, and Buffalo.
N&W is the nation's largest hauler of cola, and the proposed Chessie-SCL merger has been viewed as posing a threat to coal volume. Indeed, in papers filed with the ICC, Chessie and SCL and Chessie threatened to cancel their deal because threatened to cancel their deal because of Southern & N&W requests to study "volumninous information" in documents regarding the CSX merger.
"In order not to destroy private initiative end-to-end rail consolidations," Southern & N&W would have to prove that they would become insolvent because of the proposed combine, in order to have the information sought, the CSX partners said.
Chessie and SCL said routes sought by the D. C. and Roanoke firms are "integral" to the CSX merger oeal with hundreds of millions of dollars in revenue and "crucial to the success of the new CSX. . ." If the ICC ordered transfers of property in a merger approval, the deal would be canceled, Chessie & SCL stated. CAPTION: MAP, NW NORFOLK AND WESTERN RAILWAY COMPANY AND AFFILIATED LINES, By Dave Cook-The Washington Post