Justice Dept. Had Urged Rejection of Deal on Tuesday : DOT Endorses Merger of Santa Fe, SP

The Transportation Department on Wednesday endorsed the proposed merger of the Atchison, Topeka & Santa Fe Railroad and the Southern Pacific rail system even though the Justice Department, just a day earlier, concluded that the deal would substantially reduce competition and should be rejected.

The two departments disagreed sharply on the competitive effect of the merger of the two Western railroads in petitions filed with the Interstate Commerce Commission, which will decide whether to approve the combination.

While agreeing that the merger would result in some reduced competition, the Transportation Department said the impact would involve only about 3% of the total traffic now carried by the two railroads and could be solved by various restrictions being placed on the merger.

The department’s assessment of the merger, which would result in the creation of the country’s third-largest railroad system, came on the heels of the Justice Department antitrust division’s conclusion that the deal would lead to a “massive loss of competition” in many areas of the country.

“Except in those relatively rare situations where competition is reduced, the merger is consistent with the public interest,” the Transportation Department said Wednesday.

Rail Operations Separate

Southern Pacific and Santa Fe Industries, the parent companies of the two railroads, agreed in December, 1983, to merge and began combining their corporations. The rail operations have remained separate, however, pending approval from the ICC, which has jurisdiction over rail mergers.

Both railroads run from California to the Midwest, with the Southern Pacific terminating in New Orleans and the Santa Fe in Chicago. The two systems includes long stretches of parallel tracks, including along the rail corridor linking Central California and a key gateway at Ogden, Utah.

In its brief to the ICC, the Transportation Department said that there are sufficient “possible remedies” to the anti-competitive questions that the merger raises, including potential divestiture of tracks and granting of trackage rights or other arrangements with other railroads or freight forwarders.

“Under this approach, the shipping public will be assured that an effective competitor is introduced into the market,” the department said. It said the merger should be approved immediately, with the ICC restricting rates along some routes until a “pro-competitive agreement” can be put into place to deal with any reduced competition.

In its brief submitted Tuesday, the Justice Department suggested that the competitive impact of the merger “would adversely affect competition in markets throughout the geographic network of the two railroads” and not be isolated as suggested by the Transportation Department.