A group of 25 investors organized by the New York investment banking firm of Morgan Stanley & Co. made a formal offer Tuesday for the federal government’s 85% interest in Conrail, saying it was $600 million sweeter than the deal offered by Norfolk Southern Corp.
Like Norfolk Southern, the Morgan Stanley investors offered $1.2 billion in cash for the Northeastern and Midwestern freight railroad. But they said their package, unlike Norfolk Southern’s, would not require the government to forgo about $600 million in tax revenue.
The Transportation Department has urged Congress to accept Norfolk Southern’s offer. But congressional critics say its plan would concentrate the nation’s rail freight business unduly in the hands of a company that, along with CSX Corp., is already one of the two dominant freight carriers east of the Mississippi.
CSX, which opposes a sale to Norfolk Southern, was among the original bidders for Conrail rejected by the Transportation Department. It is a member of the Morgan Stanley consortium.
Besides CSX, the new group of bidders includes investment companies, pension funds, universities and professional investors. Among them are Columbia, Harvard and Princeton universities; Citicorp Capital Investors Ltd.; Dreyfus Corp.; the U.S. Steel and Carnegie Pension Fund, and Rockefeller & Co. The names of the individual investors were not disclosed.
At a press conference here detailing the proposal, Morgan Stanley officials said the new offer would enable Conrail to remain independent.
“The commitment of the investor group represents the strongest testimony to the economic viability of Conrail and to its future as a major independent rail carrier,” said Thomas A. Saunders III, a managing director of Morgan Stanley.
The plan calls for the group of investors to buy the government’s interest in Conrail for $48 a share and then resell a majority of the stock to the public over five years. At the end of that period, the investor group would own no more than 40% of Conrail, and no single investor’s holding would exceed 10%.
Conrail employees, who own 15% of the company, would be able to retain their shares or resell a portion of them at $48 a share. Conrail began operating in 1976 after the federal government took over six bankrupt railroads.
The new offer probably will win support from opponents of the Norfolk Southern bid, who have expressed concern about the impact of the sale on other railroads.
Conrail Chairman L. Stanley Crane, who has pushed to have the railroad sold through a public stock offering, said the investor group’s bid “avoids anti-competitive problems, will result in the greatest number of jobs for railroad employees at Conrail as well as Norfolk Southern and CSX and will maximize the net return to the federal government.”
But the offer won little interest from Transportation Secretary Elizabeth Hanford Dole, who said that “the proposal announced by Morgan Stanley is not fundamentally different from some we have reviewed in the past.
“Through a merger with Norfolk Southern,” she said, “Conrail’s future as a viable Northeastern railroad is guaranteed.”