CHICAGO, FEB. 24 -- Santa Fe Southern Pacific Corp. has rejected a proposal by The Henley Group Inc. that Santa Fe sell it $780 million in new stock, Santa Fe President Robert D. Krebs said today.

The proposal effectively would have given Henley control of Santa Fe while diluting the interests of other shareholders, Krebs said in a letter to Michael Dingman, Henley's chairman and chief executive.

"Your offer would have The Henley Group obtain approximately 35 percent ownership of Santa Fe Southern Pacific Corp.'s shares," Krebs said.

"That ownership percentage would transfer effective control of the company without the payment of a control premium to our shareholders," the letter said. "In addition, the offer would dilute the interests of all our shareholders except for The Henley Group."

Henley has repeatedly criticized Santa Fe's adoption of a "poison pill" takeover defense last December. Under the defense, if any stockholder's stake exceeds 20 percent, other Santa Fe shareholders would be permitted to buy new stock at half price.

Henley, based in La Jolla, Calif., said the move restricted the maneuverability of major stockholders such as itself and Toronto real estate concern Olympia & York Developments Ltd. Henley had proposed that Santa Fe stop the planned payment of $5 per share in "junk bonds" for each of Santa Fe's 157.3 million shares on March 1.