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Southern Pacific Railroad Will Be Put Up for Sale : Move Complies With ICC Ruling Forbiding Merger With Parent's 2nd Railway

September 05, 1987|VICTOR F. ZONANA | Times Staff Writer

SAN FRANCISCO — Santa Fe Southern Pacific Corp., ending months of speculation, said Friday that it will sell the historic Southern Pacific railroad to comply with a federal ruling that had blocked the railroad's merger with the Atchison, Topeka & Santa Fe Railway.

The holding company, which owns both railroads, listed four options it is considering for divesting itself of Southern Pacific. They are: selling the railroad to an outside entity, selling it to SP's management and employees, spinning it off to Santa Fe Southern Pacific's shareholders and dismembering the railroad and selling its major segments separately .

Analysts estimate that Southern Pacific--which has 2,000 locomotives, 13,000 miles of rail lines and 26,300 employees--has a market value of between $600 million and $800 million. The subsidiary's headquarters are in San Francisco.

Earlier this year, the Interstate Commerce Commission confirmed its decision not to allow the holding company to merge Southern Pacific and Santa Fe, which it has been operating as separate entities while awaiting final action by the commission.

The ICC also ordered the company to divest itself of at least one of the two railroads. There was even the possibility that the company would sell both railroads and concentrate on its natural resources and real estate businesses.

Will Move Quickly

But in a filing with the ICC on Friday, the Chicago-based holding company said it "has identified transportation, including railroading, as one of the core businesses in which it intends to remain."

Robert D. Krebs, president and chief executive of the holding company, said, "We believe it is in the best interest of all concerned to accomplish the divestiture as soon as possible." A spokesman added that bids for the railroad will be due by the middle of next month and that "our goal is to have a plan together and implemented before the end of the year."

Kansas City Southern and Denver & Rio Grand Western are the only railroads known to be vying to purchase all or part of Southern Pacific.

In addition, two groups of SP employees--one led by management, the other by the Railway Labor Executives' Assn.--are working to put together proposals for leveraged buyouts of the railroad. The two groups may submit a joint proposal, a Southern Pacific spokesman said. (In a leveraged buyout, the buyers borrow most of the money they need for the acquisition, using the assets of the target company to secure the loans.)

Santa Fe and Southern Pacific combined their non-rail operations in 1983, when the holding company was formed. As a result, the company to be divested will not include most of the vast land holdings or pipeline operations that SP once owned.

"It will be a less-balanced company, and a lot of our employees resent that," the SP spokesman said. Still, he said, employees consider a leveraged buyout to be a far more attractive option than a sale of the company--either all or part of it--to other railroads.

Southern Pacific, which played a key part in California's development, has fallen on hard times in recent years. It posted $14 million in operating earnings in 1986 but a $601-million restructuring adjustment resulted in a net loss of $253 million on revenues of $2.36 billion.

Around the turn of the century, the line encouraged migration to California by starting Sunset magazine and by advertising the state's "salubrious climate, fertile soil" and lack of "cyclones or buzzards."

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