3 U.S. Departments Voice Opposition to Rail Merger Plan

The Justice, Transportation and Agriculture departments on Monday announced their strong opposition to the proposed merger of Southern Pacific Rail Corp. and Union Pacific Corp., a combination that would create the nation’s largest railroad line.

The Justice Department said formation of the behemoth with 35,000 miles of track should be denied “in the interest of preserving competition in the rail freight industry and for the good of the American consumer.” Only the sale of “major rail lines” would make the deal acceptable to the government, the department said.

“This merger would mean higher shipping charges and would cost consumers dearly,” said Anne K. Bingaman, assistant attorney general in charge of the antitrust division.

The Justice Department had criticized the proposed deal in April, warning that creation of the nation’s largest railroad would raise “significant competitive problems.” That preliminary position became a formal rejection on Monday with the announcement that federal agencies filed briefs in opposition to the Surface Transportation Board.

The board is an independent agency within the Transportation Department and is the successor to the Interstate Commerce Commission. It will rule on the merger application by July 3, and seems unlikely to grant approval without major changes because of the strong opposition from Justice and Transportation, as well as from Agriculture.

The combination of the two railroads would be more acceptable on competitive grounds, the Justice Department said, if there were the sales of:

* Lines between Los Angeles and Chicago or another eastern gateway.

* One of the two central corridor routes from Oakland through Salt Lake City and Denver to Kansas City, Mo.

* One of the two parallel routes radiating from Houston. The routes proceed north through Little Rock, Ark., and Memphis, Tenn., to St. Louis, east to New Orleans, west to San Antonio, and south to Brownsville, Texas.

“Several regions of the country, including the Texas-Gulf Coast area and the ‘central corridor’ from Denver to Oakland, would suffer a loss of rail competition unless adequate conditions are imposed on the merger,” the Transportation Department said.

The “loss of competition could result in higher prices for consumers and small business, and could possibly lead to pressures to increase economic regulation of the railroad industry, after some 16 years of highly beneficial deregulation,” the department said.

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Officials at Southern Pacific were disappointed, and said the federal agencies didn’t understand the competitive power of the Burlington Northern Santa Fe Corp., created by a merger last year.

“The Department of Justice has no evidence which would compel divestitures, but has stolidly refused to address the Burlington Northern Santa Fe’s prominence which stares us all in the face,” said Mike Furtney, a spokesman for Southern Pacific Rail Corp. in San Francisco.

“You cannot ignore the impact of the Burlington Northern Santa Fe merger which created the largest railroad in the Northwest, and created a major change in railroad marketing and operating,” Furtney said. The Union Pacific-Southern Pacific combination would “provide shippers with a reasonable alternative,” he said.

But the Justice Department repeated its earlier estimate that consumers might pay an extra $800 million a year because of reduced competition if the merger takes place.

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A combination of the two railroads would provide Union Pacific with “a monopoly in hundreds of markets, including Houston and the Gulf Coast region as well as Colorado and Utah,” the Justice Department said in its announcement. “Hundreds of other markets, such as Los Angeles,” would be left with only two rail competitors, the department said.

“It is not surprising, therefore, that there is unprecedented shipper opposition to the transaction,” the Justice Department noted.

The Agriculture Department announced its opposition, arguing that the deal would drive up the cost of transporting soybeans, wheat and other crops.

After the merger, only two railroads would be competing in the “vast grain and oil-seed production area” from the Mississippi River west to the Pacific, according to the Agriculture Department, which also said the proposed combination would restrict competition in the shipment of agricultural goods to various ports for export.