Two oldtime railroad rivals -- Sante Fe Industries Inc. and the Southern Pacific Co. -- announced plans yesterday for a billion-dollar merger that, if approved would leave some portions of the Southwest and West without competitive rail service.
The merger proposal, which would create the nation's third-largest freight rail system, was announced at the same time the House Commerce Committee was approving a measure that would reduce significantly the century-old federal regulation of the rail industry.
Antitrust questions about the proposed Sante Fe-SoPac merger already have been raised, and the proposal is expected to be scrutinized when the application comes before the Interstate Commerce Commission for approval.
"It certainly raises more anticompetitive questions than most proposed mergers we've seen," ICC Chairman Darius W. Gaskins Jr. said yesterday. "We don't have the details yet and don't know what actions they propose to take to mitigate some obvious anti-competitive effects that appear on the surface."
The Justice Department's antitrust division will help in assessing the competitive impact of such a merger, according to Elliott M. Selden, chief of the division's transportation section. Noting that the department has the statutory right to participate in the ICC proceedings, Selden said the division would examine the application when it is filed and participate "as appropriate."
In the expectation that rail deregulation will occur, railroads have been scurrying to protect themselves through mergers they think will make them more efficient and able to withstand competitive pressures. Deregulation is expected to give the railroads more freedom to freely price their services and drop unprofitable routes.
A Sante Fe-SoPac combination -- with a total of 23,524 rail route miles -- would follow in size the system created by the recently approved merger of the Burlington Northern and the Frisco, and the Chessie System-Seaboard Coast Lines merger now pending.
Unlike the other recent Large merger -- which are generally considered end-to-end mergers -- the proposed uniting of Sante Fe and Southern Pacific would combine two railroads running parallel in many areas and that traditionally have competed against one another, especially in California and Texas.
It is possible that the IDC will approve the merger if the two agree to spin off certain subsidiaries to mollify some shippers expected to be concerned about less competition. The benefits of deregulation to shippers include lower rates and differing services.
The efficiencies inherent in this combination are necessary to maintain our competitive position in an environment wherein major railroad combinations are in various stages of formation," John S. Reed, chairman and chief executive officer of Sante Fe, and B. F. Biaggini, chairman and chief executive officer of Southern Pacific, said yesterday in a joint statement.
"The new company will combine basic transportation, natural resources, real estate and financial services, offering shareholders a broader-based enterprise and affording customers, employes and the communities we serve greater opportunities than either might be expected to achieve alone."
The combined corporation would be named Sante Fe Pacific Industries Inc. and would have headquarters in Chicago, Sante Fe's headquarters, Santa Fe clearly has the upper hand in the proposed merger, it would nominate the chairman and chief executive officer of the new company and appoint 12 members to the board of directors. SoPac would nominate the president and name eight directors.
In transportation, Sante Fe's rail line -- the Atchison Topeka and Sante Fe -- operates 12,200 route miles from Chicago to the Gulf of Mexico and the Pacific Coast. Sante Fe Trail Transportation Co. conducts trucking operations over 23,766 route miles; and its pipeline subsidiary has a capacity of 2.25 million tons a year.
Southern Pacific operates 11,290 route miles in 12 western and south-western states and has applied to buy 965 miles of the Rock Island line. Its trucking operations are the nation's 12th largest with four companies serving a 30,500-mile route system.
SoPac also controls a 3.7 million acres of properties, including 450,000 acres of timber, 164,000 acres of agricultural land and 1.4 million acres of retained mineral rights. Other interests include a telecommunications nework, financial services, a petroleum products pipeline service, and the nation's only coal slurry pipeline.