The investment banking firm that represents Norfolk Southern Corp. in its bid to buy the government's 85 percent stake in Conrail said yesterday that a competing bid gives no more money to the government but is less likely to ensure the long-term "viability" of Conrail.
Shearson Lehman Brothers said that the bid announced last week by another major investment banker, Morgan Stanley & Co., "seems to fall far short of Norfolk Southern's offer in many critical areas."
Morgan Stanley has organized a group of investors, led by CSX Corp., that is offering $1.2 billion in cash and other benefits for the government's share in Conrail. The investors plan to sell a majority of their shares to the public at large within five years. Norfolk Southern, CSX's main rail competitor, also has offered $1.2 billion.
Congress must approve the sale of Conrail, a freight hauler that was put together from the remains of the Penn Central and other Northeast railroads. Conrail employes own the remaining 15 percent of the rail line.
The Department of Transportation supports the Norfolk Southern offer, and the Senate Commerce Committee last month approved the offer, as well.
Conrail management, which would continue to run the railroad under the Morgan Stanley offer, supports the new plan.
Shearson yesterday disputed a Morgan Stanley contention that the government would collect $600 million more in taxes under the Morgan proposal. Shearson said the maximum tax benefit, if any, to Norfolk Southern is "substantially less than $100 million."
Furthermore, Shearson said, the Morgan Stanley offer would dip into Conrail cash to pay employe claims on the railroad -- including buying out stock owned by an Employe Stock Ownership Plan -- and Morgan's investors might pay themselves a dividend of up to $72 million out of Conrail's earnings in the six months prior to closing the deal.
Norfolk Southern would pay employe claims out of its own funds. The actual Norfolk Southern outlay would be $1.575 billion, while the Morgan Stanley group would spend $1.2 billion, Shearson said. If the investors paid themselves a $72 million dividend, their outlay would be $1.128 billion compared with Norfolk Southern's $1.575 billion.
Dipping into Conrail's cash would weaken the operation, Shearson said.