House Passes Bill to Sell Conrail Stock to Public

The House approved legislation Wednesday to sell Consolidated Rail Corp., the government-owned freight rail carrier, in a public stock sale designed to raise at least $2 billion and help reduce the federal deficit.

The Conrail legislation was included in a $15-billion deficit-reduction bill that was passed on a 309-106 vote by the House to meet the Gramm-Rudman balanced-budget law.

The Senate approved a similar Conrail sale measure last week in its $13.3-billion deficit-reduction bill.

Under the House measure, the government’s 85% stock interest in Conrail would be sold in the largest public stock sale in Wall Street history. The remaining 15% of Conrail stock is held by the railroad’s employees.

The legislation also requires Conrail to transfer $300 million to the U.S. Treasury out of its roughly $1 billion in cash reserves.

House and Senate negotiators will meet to work out differences between the two chambers. Since both the House and Senate want a Conrail sale to help reduce the deficit, it appears virtually certain that legislation to sell the railroad will be passed by Congress this year.

But the Administration and some Senate leaders have expressed opposition to rail labor protection provisions attached to the House version of the Conrail legislation, meaning agreement is not assured.

Conrail was created by Congress in 1976 out of the remains of the bankrupt Penn Central railroad and several smaller lines in an effort to preserve freight rail service in the Northeast and Midwest.

Despite more than $7 billion in federal subsidies, Conrail lost money in its early years. It turned the corner in 1981 and in the last three years has posted net income ranging from $300 million to $500 million annually, making a sale back to the private sector feasible.

The sale bill authorizes the transportation secretary to select the investment banking house that will handle a sale, a selection that is being hotly contested by various Wall Street companies.

Goldman, Sachs & Co., which has advised the Transportation Department throughout the extended deliberations on the Conrail sale, is thought to have an inside track on getting the assignment.

But Morgan Stanley & Co., which fought a long battle to convince Congress that a public stock sale could succeed, is also bidding for a piece of the action, as is Salomon Bros.