Moving with unusual regulatory speed, the Interstate Commerce Commission yesterday approved unconditionally a merger of the big Chessie System and Seaboard Coast Line holding companies into the nation's biggest railroad transportation system.
With assets of some $7 billion, the merged companies will operate 27,000 miles of track in 22 states, the District and Ontario Province of Canada, creating the first combination of railroads that will permit single-line shipments fo freight from the industrialized northeastern states to the expanding economic base of the Southeast.
The ICC's swift decision -- final agency action was not required by law until next August -- also makes it likely that the eastern half of the United States soon will be served by just three major railroad firms as part of a substantial nationwide industry restructuring.
After the Penn Central Railroad collapse a decade ago, the government helped to set up and finance Consolidated Rail Corp., a Philadelphia firm, as successor to the Pennsy and half a dozen smaller bankrupt lines.
With 17,000 miles of main routes throughout the Northeast and Midwest, Conrail continues to survive with federal investments while the other two prospective eastern U.S. systems represent combinations of profitable private corporations.
The third likely eastern road would be a merged Norfolk & Western and Southern, which has been formally proposed by the Roanoke and Washington companies but still must be approved by stockholders at meetings on Nov. 7 and by the government.
Chessie and Seaboard executives have emphasized that they will seek to avoid mistakes made by managers of the doomed Pennsylvania and New York Central lines. At first, for example, Chessie and SCL will be operated independently as separate railroads with little consolidation and only a small headquarters staff for overall planning purposes. Computer systems of the two firms have been made compatible, erasing one problem that helped bring about a Penn Central collapse.
Officials have said the new firm will place its headquarters in Baltimore, Richmond, Louisville or Lexington, Ky. No final merger date has been announced but a Jan. 1 transition is considered possible, to help in calendar year accounting for the current firms.
Tentatively , the new company is being called CSX Corp., with Seaboard stockholders having a slightly larger share of total ownership (50.2 percent of new stock). Each share of Seaboard Coastline Industries common stock will be exchanged for 1,324 shares of the new firm, and each share of Chessie will get one share of the new holding company stock.
The ICC's action yesterday means that 16 railway lines will be combined under one holding company, which also will own such diverse businesses as newspapers, a major resort and coal mines. The two firms are:
Chessie System Inc., based in Baltimore and Cleveland, which owns the Baltimore & Ohio, Chesapeake & Ohio and Western Maryland railroads, coal mines, timber land and the Breenbrier resort in West Virginia, with 39,000 employees and annual revenues of $1.9 billion.
Seaboard Coastline Industires Inc., based in Jacksonville and Richmond, which owns Seaboard Coast Line and Louisville & Nashville railroads, an information systems firm and Florida Publishing Co., publisher of the Jacksonville and St. Augustine, Fla., dailies as well as North Florida weeklies. SCL has 37,309 employees and annual revenues of $2.2 billion.
In terms of assets, CSX will become the largest transportation company in the United States. Combined profits of the two railroads are greater than any other transport firm except for two oil pipelines. Only TWA, United Parcel Service and Conrail will have more employees in the transportation sector of the American economy.
The Justice Department did not oppose the combine, arguring that the proposed "end-to-end" merger of two noncompeting railroads was in line with government policy. Earlier this year, the ICC approved a proposed acquisition by Burlington Northern of the Frisco railroad into a 30,000-mile system, but that merger has been held up in the courts. Other consolidations of railroads in the West have been proposed.
In approving the merger yesterday, the ICC said CSXwould offer opportunities "for more efficient routing of traffic, simplified car tracing, improved customer information, greater car supply, improved car utilization and improved service."
The combination will create single system service for the first time in such interregional corridors as Jacksonville-Philadelphia, Pittsburgh-Birmingham and Toledo-Atlanta, for example. In addition, the ICC approved 18 projects to improve coal shipping to electric utilities in the Southeast, as the railroads proposed.
Commissioner Charles Clapp dissented from the approval in part, arguing that the agency should have required some measures of protection for other lines that will be affected by the merger.
Under legislation passed after the Penn Central collapse, the ICC now is required to make merger decisions with 31 months after formal applications are filed. Earlier, the agency took more than a decade to review a proposed acquisition of the Rock Island by Union Pacific Corp., and the Rock Island subsequently went bankrupt.