Norfolk Southern Tells SEC It May Seek to Take Over Piedmont Aviation
Norfolk Southern said Tuesday that it is considering a takeover of Piedmont Aviation, owner of Piedmont Airlines, one of the few U.S. airlines that has not been involved in the merger frenzy of the past 18 months.
In a filing with the Securities and Exchange Commission, Norfolk Southern, which already owns 19.4% of the airline, said it “should no longer be considered a passive investor” in Piedmont.
Norfolk Southern, formed in 1982 by the merger of the Norfolk & Western Railway and the Southern Railway, said it had retained an investment banking firm to assist it “initially in analyzing its alternatives . . . and, more recently, to advise it in connection with the possible acquisition.” Although the SEC filing did not identify the investment banking firm, a lawyer for Norfolk Southern identified it late Tuesday as Salomon Bros.
Norfolk Southern, which said it already owns 3,770,428 shares of the 18.8 million shares of Piedmont outstanding, bought the stock in 1981 and had a “standstill” agreement with the airline company that prohibited it from purchasing more than 20.5% or disposing of its holdings in a block. That agreement expired Monday night.
Norfolk Southern, headquartered in Norfolk, Va., said it will hold discussions with Piedmont concerning its intentions. It added that there can be “no assurance” that it will make an offer for the airline, which is based in Winston-Salem, N.C.
A spokesman for Piedmont, Donald F. McGuire, said Tuesday that no acquisition offer has been received from Norfolk Southern and that any future offer would be “evaluated by the company with a view toward determining what would be in the best interests of the company and its shareholders.”
$900-Million Deal
Joseph B. Muldoon, railroad analyst for the Philadelphia brokerage house of Janney Montgomery Scott, calculated that Norfolk Southern would have to pay $60 per share for the remaining shares of Piedmont. That would make the deal worth about $900 million.
The acquisition of an airline by a railroad would be unique in recent aviation history. Veteran observers said the only case that they could recall was the Pennsylvania Railroad’s ownership of Trans World Airlines’ predecessor company in the late 1920s. Passengers between New York and the West Coast in those days would fly by day and travel by railroad at night.
Some observers said Tuesday that while some railroads have been buying other transportation companies, such as trucking and pipeline firms, the purchase of an airline by a railroad might not be a wise move.
“I am a little at a loss about it, Muldoon said. “I would have understood it when the railroads were heavily in the passenger business, but now the railroads are out of the passenger business. I don’t see where the railroad would benefit that much.”
Piedmont owns 159 planes, serving 113 cities in 27 states, with the center of its operations being in the Southeast. It has 18,000 employees and has been consistently profitable.
Company Is ‘Cash Rich’
Norfolk Southern, which operates its two railroads over 17,600 miles of track in the East, South and Midwest, also owns North American Van Lines. Rail transportation of coal is the company’s main source of revenue and it could well afford to buy Piedmont. As one analyst put it, Norfolk Southern is “cash rich,” having withdrawn its $1.9-billion bid for the federal government’s 85% interest in Conrail last year when Congress opposed it.
On Tuesday, Norfolk Southern reported the highest net income in its history for a full quarter and a full fiscal year. Earnings for the fourth quarter of 1986 were $144.2 million, up 20.1% from the $120.1 million reported for the same quarter in 1985. For all of 1986, earnings were $518.7 million, up 3.7% over the $500.2 million the previous year.
