Justice Dept. Assails Rail Merger

The Justice Department on Friday criticized Union Pacific Corp.’s proposed $4-billion purchase of Southern Pacific Rail Corp. on grounds it would lessen competition, notably in California and other Western states.

In taking its “preliminary position” on the deal, the agency said the merger “raises significant competitive problems in a large number of markets,” reducing the number of major railroads in some places to fewer than three.

In California, Burlington Northern Santa Fe Corp. is the only other major carrier.

The reduced competition “may result in price increases to shippers and consumers of roughly $800 million,” the agency said.

But the Justice Department stopped short of formally opposing the deal or recommending that the merged railroad be forced to shed trackage or otherwise change its proposal. The agency said it “reserves judgment . . . until the record is complete.”

The merger would create the nation’s largest railroad. Union Pacific and Southern Pacific together operate 36,200 miles of track and had combined 1995 revenue of $10.6 billion.

The Justice Department’s stance will add clout to those opposing the deal--which include many shippers, some states’ regulators and competitor Conrail Inc.--but the agency does not have the final word.

It will be up to the U.S. Surface Transportation Board--the successor to the Interstate Commerce Commission--to approve the merger, and a decision is expected this summer.

Dick Davidson, Union Pacific’s chief operating officer, said in a statement that the Justice Department’s stance “overlooks an industry reality,” namely that the industry has been rapidly consolidating. For example, the Burlington Northern and Santa Fe railroads merged last year.

“We remain confident” that a merger of Union Pacific and Southern Pacific “will create quality competition” to Burlington Northern Santa Fe Corp., “as well as offer benefits to shippers such as improved routes and service, greater efficiencies and lower costs,” Davidson said.