Norfolk Southern Cancels Its Offer to Acquire Conrail : Cites Congressional Opposition and Changes in Tax Laws; Dole Says She’ll Now Back Sale Through Public Offering
Norfolk Southern Corp. on Friday announced that it is withdrawing its bid to purchase Conrail, citing congressional opposition to the sale and changes in federal tax laws. The Reagan Administration has battled for 18 months to sell the government-owned freight line to Norfolk Southern.
“There is no end in sight to the legislative impasse which has already delayed the sale too long,” Norfolk Southern Chairman Robert Claytor wrote to Transportation Secretary Elizabeth Hanford Dole in informing the government of the withdrawal.
The announcement clears the way for Congress to move ahead on legislation that would sell Conrail through a public stock offering and maintain it as a separate railroad. Key members of Congress suggested that a sale along those lines is still possible this year.
Conrail serves 15 states from the Northeast to Missouri.
Dole, who had championed the merger, said that she regretted Norfolk Southern’s withdrawal but that she will work with members of Congress to put together a deal to sell Conrail to independent investors.
Seeks Action Before Session Ends
“I believe this is both possible and desirable this year,” said Dole, who had sharply opposed the public offering approach in the past on the ground that it does not ensure Conrail’s further health. Dole said she was now supporting a public stock offering because she wanted to win approval of sale legislation before the current congressional session expires in October.
However, she added, “Any such alternative must contain strong measures which provide assurances of viability (for Conrail), particularly now that the strength added by the Norfolk Southern acquisition is no longer available.”
Norfolk Southern announced its decision to abandon the Conrail purchase in a three-sentence statement issued from its headquarters in Norfolk, Va. A spokesman said the railroad would have no further comment.
The Transportation Department later made public Claytor’s letter to Dole.
In the letter, Claytor said the continuing opposition in Congress to the merger and changes in federal tax laws prompted Norfolk Southern to withdraw its offer.
Norfolk Southern had announced interest in buying Conrail, a creation of Congress a decade ago to assure rail freight service for the Northeast, in June, 1984. Six months later, Dole declared Norfolk Southern as her choice as a buyer.
But the sale, which must be approved by Congress, immediately ran into trouble on Capitol Hill.
Dole said she shared Norfolk Southern’s frustrations over the House’s failure to approve the offer as the Senate did. “I urge the House to put aside special interests and move quickly to return the railroad to the private sector,” she said.
Critics argued vigorously that combining the two railroads posed serious competitive problems because they compete directly over much of their systems.
Criticism also centered around how much money Norfolk Southern was willing to pay--$1.2 billion initially, later sweetened to $1.9 billion--since the government originally invested more than $7 billion to get Conrail started.
But Dole argued repeatedly that Norfolk Southern had the “deep pockets” to assure Conrail’s viability. The Republican-controlled Senate approved the sale plan last February, but it ran into a wall when it came to the House, where it never emerged from committee.
The most serious blow came last June when Rep. John Dingell (D-Mich.) chairman of the House Energy and Commerce Committee, announced his opposition to the merger and said it would not be approved by his panel.
Dingell said he favored a public stock offering, which he said could raise more money for the government and would alleviate the competitive problems raised by merging Conrail and Norfolk Southern.
Lobbying Effort Cooled
Norfolk Southern officials conceded after Dingell’s announcement that prospects for congressional approval were virtually zero. In recent months the railroad, which reportedly has spent $10 million to try to win approval for the deal, all but withdrew from its lobbying effort.
Earlier this week, a Norfolk Southern spokesman, Jim Granum, called the merger all but dead and said the company “was not going to alienate Congress on a futile kamikaze mission.”
But the Conrail sale is sure to be a continuing subject for Congress when it returns Sept. 8.
Sen. John Danforth (R-Mo.), who guided the Conrail-Norfolk Southern merger bill through the Senate, said that while he was “extremely disappointed” by Norfolk Southern’s withdrawal, he is ready to consider a public stock offering approach “even if it means going with the second-best alternative.”
“I’m hopeful we can still sell Conrail this year,” said Danforth, who is chairman of the Senate Commerce Committee, through which any Conrail legislation must pass.
