Union Pacific Makes Hostile $3.4-Billion Bid for Santa Fe : Railroads: Takeover target had agreed to be bought by Burlington Northern, which says the deal is still on track.

Union Pacific Corp., jumping into the merger frenzy sweeping the railroad industry, launched a hostile $3.4-billion takeover bid Wednesday for Santa Fe Pacific Corp., which agreed in July to be bought by Burlington Northern in a deal then valued at $2.7 billion.

Union Pacific’s offer, which would affect railroad competition in California, was unveiled late in the day after Santa Fe Pacific’s chairman, Robert D. Krebs, rebuffed a merger proposal during a meeting earlier Wednesday with Union Pacific Chairman Drew Lewis, a former U.S. transportation secretary.

“I was disappointed by your unwillingness to consider our proposal,” Lewis said in a letter to Krebs attached to Union Pacific’s unsolicited bid.

Burlington Northern Chairman and Chief Executive Gerald Grinstein said in a statement that Union Pacific’s takeover proposal “is nothing more than an attempt to stifle healthy competition in the Western United States” and would probably be rejected by government regulators. He said Burlington Northern still plans to merge with Santa Fe Pacific.

Executives for Santa Fe Pacific could not immediately be reached for comment.

Union Pacific offered to buy Santa Fe Pacific by exchanging 0.344 share of its stock--valued at $17.85 a share as of Wednesday--for each of Santa Fe Pacific’s shares.

Burlington Northern, based in Ft. Worth, likewise had agreed to an exchange of stock to buy Schaumburg, Ill.-based Santa Fe Pacific. But the value of Burlington Northern’s offer, about $14.40 a share when it was announced three months ago, has since declined to about $13.30 a share.

All railroad mergers must be approved by the Interstate Commerce Commission.

Union Pacific said its merger with Santa Fe Pacific would create a railroad with 26,371 miles of track, annual sales of $7.4 billion and 43,000 employees.

The Burlington Northern-Santa Fe Pacific merger would create the nation’s largest railroad, with a 33,000-mile system that would stretch from the West to the Great Lakes and from Canada to Mexico.

But after their deal was announced in July, critics--including the California Public Utilities Commission, some electric utilities and certain unions--complained that the deal would reduce railroad competition and employment in the West.

Union Pacific, a Bethlehem, Pa.-based railroad that has a significant presence in California, the Pacific Northwest, the Midwest and Texas, asserted that its merger deal would alleviate those concerns by providing greater competition in the West.

If Santa Fe Pacific accepts its offer, Union Pacific said it is also willing to grant certain conditions to Burlington and other railroads “to maintain rail competition in the California-Midwest corridor” and other locations.

Union Pacific’s bid is only the latest in a series of merger moves by the nation’s railroads, which are consolidating to cut costs and therefore better compete against companies that ship by truck, rail and barge. Also in July, for instance, Illinois Central Corp. agreed to buy Kansas City Southern Industries Inc.’s rail operation for about $686 million in stock.

Earlier in the day, Santa Fe Pacific’s stock closed at $12.625 a share, down 37.5 cents, in New York Stock Exchange composite trading. Union Pacific’s stock closed at $51.875, down 37.5 cents, and Burlington Northern finished at $49.375, down 62.5 cents.