Proposed Deal Would Create Rail Monolith : Mergers: Burlington Northern and Santa Fe Pacific hope to persuade ICC and stockholders to OK $2.7-billion union.

Burlington Northern and Santa Fe Pacific Corp. said Thursday that they have signed a definitive agreement to merge in a $2.7-billion stock swap that would create the nation’s largest railroad.

The merger would combine Burlington Northern’s routes in the Pacific Northwest, Midwest and Southeast with Santa Fe’s lines in California, the Southwest and the Midwest.

“The deal makes extraordinarily good sense,” according to Susan Chapman, rail analyst with Forbes, Walsh, Kelly & Co. in New York, adding that the merger had been “rumored for six to eight months.”

The deal is by no means certain, however, because it is subject to approval by the Interstate Commerce Commission as well as shareholders of both companies. The ICC rejected a proposed mega-merger of Santa Fe and Southern Pacific in 1986, saying the combination would not be in the public interest because it would reduce competition.

But the chances for approval are better in this case, analysts say, because the rail networks of Ft. Worth-based Burlington Northern and Schaumburg, Ill.-based Santa Fe Pacific contain little overlap and few parallel routes.

Nevertheless, two competing railroads, Southern Pacific and Union Pacific, issued statements Thursday that took pains to note that the merger will be subject to scrutiny.

“We will be studying this proposal to assess its implications on rail competition and its potential effect on the industry, Southern Pacific and our shippers,” Southern Pacific President E.L. Moyers said in a statement.

An ICC spokesman said regulators could take more than 2 1/2 years to review the proposal, including holding public hearings.

Burlington Northern Chairman Gerald Grinstein would be chairman of the new company and Santa Fe Pacific Chairman Robert D. Krebs would be chief executive.

Santa Fe spokesman Russell Hagberg said the merger would create single-carrier service from all major ports in the West to the Midwest and Southeast. The merged railroad would be called Burlington Northern Santa Fe Corp. and would have 45,000 employees and 33,000 miles of track in 34 states.

All the nation’s railroads face unrelenting pressure from truck lines, which are grabbing an increasing share of the U.S. freight-hauling market. Hagberg said the railroads compete best against trucks on rail lines hauling bulk or heavy cargoes over long distances.

“Through efficiencies that will be created . . . we’ll have the opportunity to take traffic from the highways,” he said.

Layoffs are a certainty if the merger goes through, although the number of employees losing jobs would total in the “hundreds, not the thousands,” Burlington Northern spokesman Richard Russack said.

Burlington Northern is the second-largest U.S. railroad, with revenue of $4.7 billion. But it operates more lines than any other railroad, with 25,000 miles of track in 25 states and two Canadian provinces. Santa Fe Pacific’s Atchison, Topeka & Santa Fe line is the seventh-largest railroad, with $2.4 billion in revenue and 8,000 miles of track in 12 states.

Burlington Northern shares closed at $53.375, down 12.5 cents, and Santa Fe Pacific closed at $20.625, up 25 cents, in New York Stock Exchange trading Thursday.