Norfolk Southern Bids $1.49 Billion for Piedmont Aviation

Railroad giant Norfolk Southern Corp. has proposed a $1.49-billion takeover offer for Piedmont Aviation Inc., parent of fast-growing and profitable Piedmont Airlines, the companies reported Tuesday.

Piedmont also disclosed that it had received two alternative takeover proposals from rival USAir Group Inc. but was leaning toward Norfolk Southern’s offer, which would pay $65 a share cash.

Norfolk Southern, which has owned a stake in Piedmont for more than five years, said last month that it had about 19.4% of Piedmont’s 23 million shares outstanding and was considering a bid for the airline.

In a statement about the Norfolk Southern bid, Piedmont said it also has received two alternative takeover proposals from USAir, but that the airline company’s independent directors have recommended acceptance of the railroad’s offer by Piedmont’s board of directors.

The latest development came against a background of rapid consolidation in the deregulated airline industry and raised the prospect that other bidders would emerge for Piedmont. Besides USAir, speculation on possible suitors focused on Trans World Airlines and Northwest Airlines.

Some analysts said Norfolk Southern’s proposal also reflected aggressive efforts by the big U.S. railroads to expand into different forms of transportation. But others questioned whether the Virginia-based railroad was serious about acquiring Piedmont or was simply trying to boost its stock price.

“I just can’t see Norfolk Southern being that serious about owning Piedmont as a long-term, ongoing operation,” said Louis Marckesano, airline analyst for the Philadelphia investment firm Janney Montgomery Scott Inc.

“I could see this if we were talking trucking company and ocean-going shipping,” he said. “But for 40 years the railroads have run from passenger traffic, and this would mark a complete turnaround from that philosophy.”

On Wall Street, the prospect of a bidding war for Piedmont rocketed its stock $6.25 a share higher to close at $65.375. Norfolk Southern dropped 87 1/2 cents a share to $93.75.

Analysts had long speculated that Piedmont was a takeover target, partly because of its spectacular growth. The Winston-Salem, N.C.-based company has averaged a 25% annual jump in revenue since the airlines were deregulated in 1978 and has been profitable for 10 consecutive years.

Norfolk Southern officials declined to elaborate on why the company wants to acquire Piedmont.

“Right now, we’re just awaiting the decision by the boards of directors,” said Norfolk Southern spokeswoman Deborah Noxon.

One of the nation’s largest railroads, Norfolk Southern is a holding company that owns all the common stock of Norfolk and Western Railway Co. and Southern Railway Co. and North American Van Lines Inc. Norfolk Southern operates 18,100 miles of track in 20 eastern states and the Canadian province of Ontario.

The company tried unsuccessfully last year to buy Conrail from the federal government and reportedly has about $1 billion cash on hand as a result, enabling it to easily finance a substantial acquisition.

On Jan. 27, Norfolk Southern reported record high profits both for a fourth quarter and for a year.

Piedmont has grown from a small carrier serving mid-size cities in the eastern states to one of the top 10 U.S. airlines, serving more than 100 cities in 30 states and the District of Columbia. It employs about 19,000 people and runs a fleet of 160 jetliners.