SP Is Allowed to Merge With Denver Rail Line : Decision by ICC Ends Battle Over Ownership of Carrier and Creates 5th-Biggest System in U.S.

By ROBERT A. ROSENBLATT

Aug. 10, 1988 12 AM PT

Times Staff Writer

WASHINGTON —

The Interstate Commerce Commission approved Tuesday the sale of the Southern Pacific Railroad to Denver-based Rio Grande Industries, marking a new era for the historic rail line that first linked Los Angeles and San Francisco.

The deal, by combining Southern Pacific with the Denver & Rio Grande Western Railroad, will create the nation’s fifth-largest rail line, with 15,000 miles of track. The merged railroad will keep its headquarters at the Southern Pacific offices in San Francisco and will operate under the Southern Pacific name.

Approved by a 4-0 vote, the merger also ended a five-year stalemate over the ownership of the Southern Pacific.

Along with its rail line, Southern Pacific has massive parcels of real estate, bestowed by Congress in 1866 as a lure to extend service from the San Francisco Bay Area to the then-fledgling community of Los Angeles.

Plans to Sell Surplus

“I want to re-emphasize that we will be in the railroad business, first and foremost,” said Philip Anschutz, the investor who controls Rio Grande Industries. “The combined system will concentrate on that.”

The land holdings “have been, and will continue to be, analyzed in detail,” he said. “We are determining just what the railroad needs for present and future growth. What is surplus, we will endeavor to sell. But we will not dispose of property which is needed to support the railroad now or in the future.”

Money from the sale of real estate will be used to pay off some debt and improve the railroad’s facilities and equipment, he said.

The merger should be completed in December, forming a railroad that will serve 15 states, employ 26,300 workers and have combined operating revenue of about $2.5 billion.

New Competitive Clout

The Southern Pacific operates on the West Coast and along the southern tier of the country with tracks stretching from Portland, Ore., through Central California and across the Southwest as far east as New Orleans. It also operates lines from San Francisco to Ogden, Utah, where it links up with the Denver & Rio Grande Western, and from St. Louis to the Gulf Coast. The Denver & Rio Grande runs along a central corridor from Ogden to St. Louis.

Combining the two carriers provides “operating flexibility and new competitive clout” to compete for freight business against trucking companies and Union Pacific, the nation’s largest railroad, Anschutz said.

“The people of both railroads are tired of being pushed around by the competition . . . and they want to start pushing back,” he said.

The merger “will produce efficiencies that are not being independently realized by the two railroad carriers today under their separate operations,” ICC Chairman Heather J. Gradison said. “There are also no discernible harms to competition or to essential railroad services.”

The combined railroad will be stronger financially than either carrier would be alone, the ICC said.

In approving the combination, the ICC rejected a $1.25-billion bid by the Kansas City Southern Railway to buy Southern Pacific. “The biggest loser today was the public interest,” said Kansas City Southern President Landon Rowland. “The commission today voted for a bid that would put $4 billion less into the Southern Pacific over the next five years than we would.”

Helped Develop California

The 1983 merger of the parent companies of the Southern Pacific and the Atchison, Topeka & Santa Fe railroads united two rail titans that helped open the West to settlement in the 19th Century. The railroads then operated as competing lines while waiting for federal approval to merge. However, the ICC surprised the industry by ruling against the proposed merger and directing the parent company--Santa Fe Southern Pacific--to sell either of the rail lines.

After considering several suitors, the parent company in December opted to sell Southern Pacific to Rio Grande Industries for $1.02 billion in cash and the assumption of $780 million in Southern Pacific debt.

The Southern Pacific had its origins in the Sacramento Valley Railroad, a 23-mile line built in 1856. The route was extended over the Sierra Nevada, and the carrier was renamed the Central Pacific.

In 1869, the nation was linked for the first time by rail when a golden spike was driven into the track bed at Promontory Point, Utah, connecting the tracks of the Central Pacific and the Union Pacific. The fast-growing Central Pacific later changed its name to the Southern Pacific and became a key political and economic force in the development of California.

HOW THE BIG RAILROADS STACK UP Route miles

1. Union Pacific 24,074**

2. Burlington Northern 23,476

3. CSX 21,494

4. Norfolk Southern 17,254

5. SP/DRGW 15,046*

6. Conrail 13,341

7. Santa Fe 11,709

**Includes Missouri-Kansas-Texas Railroad

*SP 12,799 miles; DRGW 2,247 miles

Employees

1. CSX 38,864