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Eventual Makeup of Santa Fe Southern a Question Mark

July 02, 1987|ROBERT E. DALLOS | Times Staff Writer

NEW YORK — Analysts and other observers had varied opinions Wednesday about the eventual result of the Interstate Commerce Commission's reaffirmation that it will not permit the merger of the Santa Fe and Southern Pacific railroads. The ICC gave the holding company that owns both lines two years in which to sell at least one of them.

A major element was added to the discussion when Santa Fe Southern Pacific Corp. quickly followed Tuesday's ICC announcement by saying that it wants to sell a number of its smaller subsidiaries.

But exactly what the corporation will do with its various properties and businesses remains to be seen. Predictions range from the sale of just one railroad--to satisfy the ICC--to the disposal of all assets, with shareholders reaping the spoils.

Without the railroads and the subsidiaries it has put on the market, the company would remain a major economic force, with interests including real estate assets, petroleum and coal production businesses, a pipeline for refined petroleum products and a trucking company.

The value of the properties, especially the railroads and the real estate, is very difficult to determine, observers said, though there were reports that the real estate alone is worth $5 billion.

Graeme Lidgerwood, railroad analyst with First Boston, a New York brokerage house, said she figures that the breakup value of Santa Fe Southern Pacific would be between $50 and $61 a share.

"A large portion of the asset valuation represents real estate that would take time to divest, not to speak of inherent uncertainty in determining its value," Lidgerwood said. "Moreover, it bears noting that a $61 bid for the company would entail an outlay of $9.6 billion, suggesting a relatively limited number of buyers probably exist."

The company's real estate businesses are vast. It develops, manages and markets industrial and residential properties in 16 states. Last year, 58% of its real estate revenue was derived from land sales and 32% was from property rentals. Santa Fe Southern Pacific also owns 158,000 acres of farmland in California.

The company's four distinct pipeline systems, if combined, would be the second-largest pipeline operation in the United States in terms of volume. However, three of them are among the properties that the company hopes to sell.

Santa Fe Southern Pacific gets continuous income from coal royalties and production. Shipments from the company's first coal mine began in 1984, and the coal deposits are expected to last for several decades. The firm has mineral rights to about 9 million acres of land in the Southwest and active mineral exploration is under way.

There are also extensive petroleum exploration, development, production and marketing operations. Petroleum operations involve exploration for gas and onshore oil and the development of offshore joint ventures. About 20% of the company's oil reserves and 90% of its gas reserves are in limited partnerships.

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