U.S. May Sell Conrail to Norfolk Southern

The Reagan Administration is apparently ready with plans to sell the government’s stake in Conrail to another Eastern railroad giant, Norfolk Southern Corp., but the choice already faces strong political opposition and may be sidetracked by Congress for the rest of the year, federal and industry sources said Monday.

Reports surfaced over the weekend that Transportation Secretary Elizabeth Hanford Dole is prepared to announce Norfolk Southern as her department’s choice to buy the freight railroad as early as this week. But observers predicted that any such sale plan would quickly be ditched by a coalition of House members and labor leaders who favor a public offering of Conrail stock rather than a private sale.

Dole’s office denied Monday that Norfolk Southern had been chosen over rival bidders Alleghany Corp. and J. Williard Marriot Jr., the hotelier. Industry observers noted that she has yet to meet with railroad labor leaders, whose support is seen as crucial to the department’s sale plans. A federal official said, however, that an announcement of the sale could come as early as Wednesday and that “compelling” logic supports Norfolk Southern’s bid.

However, the Transportation Department is barred from selling its 85% share of Conrail without congressional approval. The remainder of the company is owned by non-management Conrail employees.

House critics of the Administration plan are led by Rep. James J. Florio (D-N.J.), whose Energy and Commerce subcommittee would review any proposal to sell Conrail, known formally as the Consolidated Rail Corp.

But the critics also include virtually the entire Pennsylvania legislative delegation--which fears Norfolk Southern would shift power and jobs out of Conrail’s Philadelphia headquarters--and an array of Eastern legislators who also fear the purchase would cost their districts jobs.

“The Pennsylvania coal mine people won’t let this go through. And the Baltimore port people won’t let this go through without a lot of screaming,” said one federal official close to the Conrail sale negotiations, who requested anonymity. “I think there’s a very good possibility that this whole plan will self-destruct.”

Conrail was formed in 1976 from the remains of six bankrupt Northeastern railroads. At first a money loser, it began turning a profit in 1981 and since then has amassed some $800 million in cash reserves.

Norfolk Southern, with revenue of more than $3.1 billion in 1983, has more than 18,000 miles of rail line and operates in 14 Eastern and Midwestern states. Its purchase of Conrail would create the nation’s biggest rail system and would give Norfolk Southern a dominant role in Eastern rail transport. Some analysts have said that the buy-out could undermine the East Coast competition now offered Norfolk Southern by CSX Corp., which operates rail networks in the South.

The Justice Department is expected to rule soon on the antitrust aspects of the Norfolk Southern bid. But observers predicted that the sale would turn on political, not economic, issues.

Florio urged Dole last week to consider selling Conrail’s stock to the public in limited blocks, preventing any single buyer from quickly taking over the company. Conrail’s management and several rail unions support similar sale plans.

Richard I. Kilroy, international president of the Brotherhood of Railway and Airline Clerks, said Monday that his union opposes a sale to Norfolk Southern and would urge other unions to join him in a Jan. 25 meeting.

If Congress scotches the sale plans, Conrail likely would remain in government hands until other qualified buyers could be found or a public stock sale could be arranged. Some experts favor a delay, saying it might attract more politically acceptable bidders from major West Coast railroads.