ICC Urged Not to Reopen Santa Fe Case

Kansas City Southern Railway urged the Interstate Commerce Commission on Monday not to reopen the merger case of the Southern Pacific and Santa Fe railroads, adding that the best way to ensure competition is to allow Kansas City Southern to buy Southern Pacific.

The ICC last July shocked the railroad industry by rejecting the merger of Southern Pacific Transportation and the Atchison, Topeka & Santa Fe Railway, calling it “anti-competitive.” The parent companies of the two railroads merged in 1983 but the resulting company, Santa Fe Southern Pacific of Chicago, has been required to operate its rail subsidiaries as separate and competing firms.

Santa Fe Southern has asked the ICC to reopen the merger case but the ICC has not yet responded to the petition, filed early last month.

“The ICC was right the first time when it voted, 4 to 1, last July to block the proposed merger as anti-competitive,” said Landon H. Rowland, president and chief executive of Kansas City Southern Industries, parent of Kansas City Southern Railway. The companies are headquartered in Kansas City, Mo.

“On the other hand, our willingness to purchase the Southern Pacific would result in an end-to-end integrated system that would maintain competitive railroad service throughout the areas affected,” Rowland said in a statement.

Kansas City Southern said it has hired the Lazard Freres investment firm as a financial adviser and “has obtained Lazard’s favorable opinion of its ability to finance the purchase of the Southern Pacific.”

The company’s statement did not say how much Kansas City Southern would be willing to pay for Southern Pacific, and no company official was available for further comment.

A Santa Fe Southern spokesman said the company has not received any offer from Kansas City Southern for the Southern Pacific.

“We believe that the public interest would be best served if our petition to reopen the pending railroad merger case is approved and if the merger itself is eventually approved,” the spokesman said. “We will continue to direct our efforts toward that end.”

Analyst Graeme Lidgerwood of the First Boston investment firm said she was not surprised by Kansas City Southern’s objections because in recent weeks Santa Fe Southern has reached agreements with the other primary railroad opponents of the merger. “It seemed improbable that they (Kansas City Southern) would stand by and let this lie,” she said.

Union Pacific, Denver & Rio Grande Western and Missouri-Kansas-Texas railroads were recently granted trackage rights on certain Santa Fe and Southern Pacific tracks in exchange for supporting the proposed merger.

But analysts did express surprise that the relatively small Kansas City Southern, with about 1,700 miles of track, would attempt to buy the 13,500-mile Southern Pacific.

“It’s kind of like David swallowing Goliath,” said Paul Gershon, director of research for B.C. Christopher Securities, a regional brokerage firm based in Kansas City, Mo.

Kansas City Southern Industries, which includes the railroad and its financial services, communications and real estate operations, had total assets of $1.03 billion as of June 30, 1986. Southern Pacific Transportation Co., made up of the railroad, a trucking subsidiary and real estate, had total assets of $4.9 billion as of Sept. 30.

KANSAS CITY SOUTHERN INDUSTRIES AT A GLANCE The company, based in Kansas City, Mo., operates the Kansas City Southern Lines, a 1,660-mile north- south rail line in six central states, and has diversified in recent years into financial services and fiber-optic telecommunications.

YEAR ENDED DEC. 31

(in millions) 1985 1984 1983 REVENUE 475 476 394 NET INCOME 49.9 49.1 41.8

Assets (Dec. 31, 1985) . . . . $1.066 billion Employees . . . . 4,675 Shares outstanding . . . . 9.75 million 12-month price range . . . . $46.50-$64.875 Monday’s close (NYSE) . . . . $49.50