The Justice Department has "serious reservations" about the adequacy of proposed remedies to the antitrust problems posed by Norfolk Southern Corp.'s bid to buy Conrail.
It does not appear that Norfolk Southern's plan to divest several rail lines "will establish [another] rail carrier in the designated corridor capable of providing long-term, viable competitive service," said Assistant Attorney General Douglas H. Ginsburg in a letter to Transportation Secretary Elizabeth Hanford Dole.
Dole has recommended that Congress approve the sale of Conrail to Norfolk Southern, but the Justice Department has said that the merger might reduce competition, unless the two railroads divest certain assets. The department said in January that it cannot approve the sale unless the divestitures "provide long-term, viable, and competitive rail service to locations along the corridor."
The letter, dated Sept. 25, was sent before Ginsburg knew of Norfolk Southern's announcement that day that it had offered to rent major trackage rights to Guilford Transportation Industries Inc., he said.
Ginsburg said in a news conference yesterday that he had not seen a copy of the new proposal, but that reports of the offer indicated that it would not resolve all the outstanding antitrust problems.
Conrail's management, which is fighting the proposed merger with Norfolk Southern, issued a statement yesterday saying that the newest proposal "does not address the basic issue" of whether the divestitures would "restore the competition eliminated by" the merger. "Conrail's management continues to believe that no such solution is possible."
Norfolk Southern said yesterday, in a letter to Dole, that its new plan "serves to answer questions which have been raised about GTI's competitive effectiveness and viability."
But Ginsburg indicated yesterday that the Justice Department is concerned that GTI's operating plan "provides no assurance that GTI will provide the sort of competition with the merged NS/Conrail that would be necessary" to resolve the potential antitrust problems.
While the divestitures "might allow GTI to remain financially viable and even to earn a profit, it would not address the competitive problems created by the sale of Conrail to NS," he said, expressing continuing concern that GTI might not provide service to some markets dominated by the merged lines.
Also, "there is nothing to suggest that the proposed divestitures would provide adequate connections" for competitors to provide service to some of the markets where competition may be hurt, he said.
The department also expressed concern that it was aware of only one agreement for a merged Norfolk Southern/Conrail to provide switching services to other railroads that need them to compete against the merged lines.