The Justice Department's antitrust division yesterday gave what amounts to preliminary approval to Norfolk Southern Corp.'s proposal to buy Conrail from the federal government for $1.2 billion.
Douglas H. Ginsburg, head of Justice's antitrust division, said the "latest Norfolk Southern plan appears on its face to address the competitive problems" that Justice had seen in the acquisition. He said, however, that a detailed study by Justice and an independent consultant will be necessary before final approval can be given.
Despite the careful wording, the announcement was a huge boost for Norfolk Southern and Transportation Secretary Elizabeth Hanford Dole, who last April chose Norfolk Southern as the Conrail buyer after lengthy negotiations with 15 bidders.
Dole then saw the proposal grind to a near halt on Capitol Hill while opponents charged a Norfolk Southern/Conrail merger would create an anticompetitive giant that would gouge shippers in the East and Midwest and destroy small regional railroads.
Since then, Norfolk Southern has been negotiating with Justice and two smaller railroads to find divestitures of Norfolk Southern/Conrail track or track use rights that would satisfy Justice. Many miles of Conrail and Norfolk Southern track area parallel each other west of a line from Buffalo to Pittsburgh.
The announcement is also a heavy blow to the competing offer of an investor group organized by Morgan Stanley & Co. and came on the day that Morgan Stanley Managing Director Thomas A. Saunders III announced that his investors would be willing to extend their offer for six months, through next June 30.
Saunders' news conference, in the Dirksen Senate Office Building, started with Sen. Arlen Specter (R-Pa.) announcing that "the Justice Department has just given preliminary approval" to Norfolk Southern.
Specter has led the Senate opposition to Norfolk Southern and has introduced legislation supporting Morgan Stanley. He went on to say "there is a significant fight ahead of us. . . . No one can have this merger without violating antitrust laws."
Specter is a member of the Senate Judiciary Committee, which has scheduled a hearing Thursday on the Conrail issues. Dole and Ginsburg will be among the witnesses. That could clear the way for Senate action in December on the Conrail sale legislation, which has already been approved by the Senate Commerce Committee.
Sen. Howard Metzenbaum (D-Ohio), another Norfolk Southern opponent, said that he had learned from Sen. Robert Dole (R-Kan.), the majority leader, that the Senate will not take up the Conrail bill Dec. 2, as tentatively scheduled.
Metzenbaum said, "I would say . . . that Conrail will not become a law in 1985," which was never in dispute because it was clear the House will not get to it until next year. Therefore, Metzenbaum said, "I think it might serve the nation's interests best if they Norfolk Southern withdraw their offer."
Norfolk Southern Chairman Robert B. Claytor has said many times that if there is no substantial progress -- defined as a positive vote in the Senate -- Norfolk Southern will exercise its contractual right to withdraw its offer on Dec. 31.
Sen. Dole, who also is the Transportation secretary's husband, released a statement later in the day which said that, "Although it is true I told Sen. Howard Metzenbaum that the bill would not come up Dec. 2 because of the backup of other legislation, I still have it on my must-do list for this year."
The new Norfolk Southern plan grants track-use rights and favorable switching charges to two smaller railroads, Guilford Transportation Industries and the Pittsburgh & Lake Erie. Among other things, it opens up Detroit and its auto industry-related freight movements to Guilford.
Magda Ratajski of Norfolk Southern said that the "sale plan is now going forward." Saunders said that "I don't think the Justice statement means anything. I don't see how anybody could read it as meaning anything other than, 'We have sent it off for study.' "
The Transporation Department had no comment.