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ICC Refuses to Reverse Ban on SP-Santa Fe Rail Merger; Selloff Ordered : Agency Gives Holding Company 90 Days to Submit Plan to Divest One or Both Lines Within 2 Years

July 01, 1987|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — The Interstate Commerce Commission declined Tuesday to reverse its disapproval of the merger of the Southern Pacific and Santa Fe railroads and gave the holding company that owns both lines 90 days to submit a plan to sell one or both of them within two years.

The 4-to-1 vote by the commission took place in a crowded, hushed hearing room in Washington. Within 30 days, the ICC must release a written report formally outlining the reasons for its rejection, but it was clear Tuesday that the commission majority continued to believe that the merger would have been anti-competitive.

Officials of the Chicago-based holding company, Santa Fe Southern Pacific Corp., said they would not fight the ICC ruling.

"Naturally we are disappointed with the decision by the commission," Chairman and Chief Executive John S. Reed said in a statement issued immediately after the vote.

"We had believed that the commission's original objections had been satisfied," Reed said. "While it is possible to appeal the decision in the court, we believe the employees of these two railroads have been held in suspense long enough, and I will not recommend that we pursue that possibility."

The action, which confirmed a decision the ICC made last July, raises the question of whether the holding company will sell one of the railroads or both. However, the firm made clear Tuesday that there will be a realignment of the rest of its operations and that some subsidiaries already are up for sale.

Reed said the businesses on the block include Robert E. McKee, a general contractor headquartered in Dallas; Barker's Leasing & Financial Corp., which specializes in equipment leases; Santa Fe Pacific Timber Co., which owns about 520,000 acres of timberland in Northern California, and Gulf Central Pipeline Co., which transports anhydrous ammonia from the Gulf Coast to the Midwest.

The chairman said the company is studying various options concerning the two railroads to determine what is in the best interests of shareholders, employees and the railroads themselves. The company said it expects to meet the ICC deadline and will announce its plan at the "appropriate time."

Santa Fe Southern Pacific had hoped that an agreement it reached earlier this year with Union Pacific Railroad, the major competitor to oppose the merger, would resolve the commission's concerns that the combination would weaken railroad competition in the West.

Santa Fe Southern Pacific agreed to grant Union Pacific the right to use some of the track of its two railroad subsidiaries. In exchange, Union Pacific agreed to cooperate in the effort to persuade the ICC to change its mind and approve the Southern Pacific-Santa Fe merger. Santa Fe Southern also would have gotten access to some of Union Pacific's trackage.

Despite the agreement, however, Malcolm M. B. Sterrett, one of the commissioners who voted against the merger, said Tuesday that anti-competitive concerns remain. Commissioner J. J. Simmons III said he voted against the merger again because it would have constituted a "radical restructuring" of the railroad system in the West. ICC Vice Chairman Paul H. Lamboley said there had been no new evidence that any circumstances had changed since last July and thus there was no reason to reopen the case.

The only member to vote in favor of the reversal--taking the same position she took last July--was Chairman Heather Gradison. She said she believes that the reopening was denied not because the proposed merger was a bad idea, but because the commissioners believe there may be a better railroad combination in the offing.

However, she said it is not up to the ICC to find the perfect merger or to determine whether a proposal is the best one possible.

The ICC's original action last July took the industry by surprise and went against the recommendation of its own staff. The Justice Department, however, had opposed the merger. The commission noted that the routes of the two lines overlap in many areas of the Southwest, including California. Four years ago, Southern Pacific Co., then California's largest transportation company, merged with Santa Fe Industries in a $4.9-billion deal. Despite the formation of the Santa Fe Southern Pacific Corp. holding company, the two railroads continued to be operated separately. They were required to actively compete for business.

Founded in the 19th Century, both railroads played important roles in California's history and growth, transporting immigrants to the state and bringing in industry.

The consolidated system would have been the nation's second-largest railroad in terms of track mileage and gross revenue. Burlington Northern is No. 1 in trackage and CSX--a consolidation of the Chessie System and the Seaboard Coast Line--is first in revenue. But a merged Santa Fe-Southern Pacific line, with its 52,000 employees, would have been the largest U.S. railroad employer.

Speculation on Next Move

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