There may be many opponents to the proposed link-up of Norfolk Southern and Conrail, but all sides agree that Norfolk Southern is one of the strongest and most successful in the industry.
If approved by Congress, Norfolk Southern's purchase of the government-owned Consolidated Rail Corp. will create the country's largest railroad company, a giant with combined revenues of almost $7 billion and more than 30,000 miles of track serving 25 states, Washington, D.C., and Canada.
The merger would leave the country with five major railroads, two of which would dominate the territory east of the Mississippi -- Norfolk Southern and CSX Corp. CSX is currently larger than Norfolk Southern, but the Conrail merger would tip the scales in the other direction.
Norfolk Southern's Chairman and Chief Executive Robert O. Claytor says the merger would strengthen both Conrail and Norfolk Southern by putting them in a better position to compete with trucking, which he sees as the major competition to railroads.
The acquisition also would be another step in Norfolk Southern's planned evolution into a national transportation company, capable of moving freight over rail, highways and water, or moving information over fiber optic cables.
Transportation Secretary Elizabeth Dole has recommended that Congress approve Norfolk Southern's proposal to pay $1.2 billion for the government's 85 percent share of Conrail. The Norfolk-based company would pay another $375 million for the 15 percent owned by Conrail's employes.
The proposal has divided the railroad industry, shippers and labor. Opponents fear the combination will hurt competition, leading to higher shipping rates and higher prices for commodities such as coal, grain, chemicals, auto parts and paper products. Supporters believe the merger will create a more efficient system that can lower transportation rates and ease pressure on commodity prices.
Concerned parties also disagree over the alternatives to a merger. Some opponents to the sale believe Conrail could stand alone as a private company. Others believe Norfolk Southern offers the most secure future for Conrail, which was created in 1976 out of the remains of several collapsed Northeastern railroads and which today suffers a declining traffic base.
Opponents include CSX, the Grand Trunk Western Railroad Co., Conrail management, the Pennsylvania Coal Mining Association, A.T. Massey Coal Co. Inc. and the Brotherhood of Railway & Airline Clerks, which represents 8,000 of Conrail's 25,000 employes.
Supporters of Norfolk Southern's bid include independent railroads such as the Pittsburgh & Lake Erie Railroad and Guilford Transportation Industries, which both have agreed to buy lines and trackage rights divested by the merged company. Others include Ford Motor Co., General Motors Corp., B.F. Goodrich Co. and the South Carolina State Port Authority. The United Transportation Union, representing 8,900 Conrail employes, opposes a public offering and has said it would continue discussions with Norfolk Southern.
Norfolk Southern is itself the product of a 1982 merger between the Norfolk and Western Railway and the Southern Railway. Through combining operations, cutting costs, aggressive marketing and focusing on high traffic density, the Norfolk-based company has produced the best balance sheet in the business, said Graeme Anne Lidgerwood, an analyst with Kidder, Peabody & Co.
With earnings of $482 million on revenue of $3.52 billion in 1984, and more than $1 billion in cash, Norfolk Southern is more profitable than its rival CSX.
Based in Richmond and competing over similar territory, CSX has 9,000 more route miles and reported 1984 revenues of $7.9 billion -- more than double Norfolk Southern's revenues. Yet CSX made a smaller profit, $465 million.
Lidgerwood attributes this partly to Norfolk Southern's efforts to generate large amounts of traffic over existing lines, in contrast to CSX's practice of adding lines with low traffic density. Additionally, Norfolk Southern works hard to attract new businesses to locate along its lines, markets its services agressively and "is superbly managed," she said.
More important from the Department of Transportation's point of view is Norfolk Southern's cash flow. Sitting on more than $1 billion in cash, the company would have little trouble buying Conrail, making capital improvements and supporting it through a recession, analysts say.
Transportation Secretary Dole has made it clear that she wants to sell Conrail to a company strong enough to see it through bad times, so the government won't have to rescue it again. "The Norfolk Southern is a very fine railroad corporation, with excellent management, the highest standards for maintenance in the industry, a very profitable company," Dole said after accepting the company's bid.
She also called Norfolk's bid "a bird in the hand" compared to the uncertain success of spinning off an independent Conrail through a public offering.
The United States Railway Association staff said last week that Conrail could survive future economic downturns on its own, even if it pays full industry wages and state taxes. Conrail's employes currently earn 12 percent less than the industry norm and the railroad is currently exempt from state taxes.
Norfolk Southern does not agree. It's projections show Conrail will last through the next four years, but will be in a "negative cash position" by the early 1990s, Claytor said. "I suspect that if we don't get it now, Conrail will be available in another 10 years at a much reduced price," Claytor said. "We would rather pay more now."
Norfolk Southern could use Conrail now because it fits into its strategy of becoming a national transportation company. Claytor said the future growth of railroads depends on the ability to recapture the business taken by trucking.
Conrail would give Norfolk Southern the long hauls necessary to make a profit on piggyback transport, moving goods loaded on trucks which themselves are carried on railway flat-cars.
Without Conrail, Norfolk Southern can put a piggyback truck on a flat-car in Atlanta and carry it to the end of the line at the Potomac Yard here. From there, the truck may drive to Philadelphia or New York or Baltimore because Conrail could not make money on such a short haul, Claytor said. With Conrail, a truck could be carried profitably from Atlanta to New York on one rail line, he said.
"We want to get this traffic off the 14th Street Bridge and onto the railroad," Claytor said. "This means more business for Conrail, and in the long run will make Conrail more profitable . . . while making piggyback more profitable for Norfolk Southern."
Norfolk Southern has also agreed to acquire North American Van Lines, the nation's fifth largest trucking company, for $315 million, and expects to receive government approval May 1.
The company's investments include a 17.6 percent share of Piedmont Aviation and 3 percent of the Santa Fe Southern Pacific Corp. It also has a letter of intent with Santa Fe to build an 8,000-mile fiber optics network linking 53 cities coast to coast.
Norfolk Southern plans to get into the barge business, but is concentrating now on the van lines and Conrail, Claytor said.
Last year CSX acquired the nation's largest barge company, American Commercial Barge Lines Co.
Claytor said Norfolk Southern believes a variety of transportation modes are needed to compete with trucks, particularly in the important markets of the Northeast.
Currently, both Norfolk Southern and CSX are shut out of the Northeast because Conrail holds a virtual monopoly over rail freight in New York, New Jersey and Pennsylvania.
CSX would not like to see its rival gain that monopoly. CSX Chairman and Chief Executive Hays T. Watkins told a Senate committee the proposed merger "violates every principle of good transportation policy and destroys the competitive framework which is key to the future health of our railroad system."
Mathematically, if Norfolk Southern and Conrail were combined, their profits would be bigger but their revenues would still be smaller than CSX. According to Norfolk Southern, CSX is 43 percent larger in terms of car loadings, while a merged Norfolk Southern-Conrail would be less than 20 percent larger than CSX.