CHICAGO — Burlington Northern Inc.'s $3.8 billion offer gives it an edge but no one is counting Union Pacific Corp. out of the escalating battle for Santa Fe Pacific Corp.
"I have never seen Union Pacific roll over in its history. I'd be surprised if they didn't respond," railroad analyst Michael Lloyd of NatWest Securities in New York said Monday.
On Sunday, Burlington and Santa Fe announced a new agreement worth $20 per Santa Fe share, or about $3.8 billion. The price topped Union Pacific's bid of $17.50 a share, or $3.3 billion. Burlington had previously offered about $17 a share, or $3.2 billion.
Union Pacific, the nation's largest railroad by revenue, was considering its options on Monday, spokesman Gary Schuster said.
Analysts said Burlington's bid, with its higher price, was better for Santa Fe shareholders, who are scheduled to vote Jan. 27. The main drawback is that the cash-and-stock deal would not be consummated until the Interstate Commerce Commission approves the merger in mid-1996 or later.
Union Pacific proposes giving Santa Fe shareholders their money up front and placing Santa Fe in a separate trust, which would run it while the ICC deliberates.
Analysts said that investors who want the money now would prefer a Union Pacific price equal to Burlington's.
"Union Pacific's offer at the same dollar price is always better than Burlington's offer," Mark Altherr of Salomon Brothers Inc. said. He also said Union Pacific can offer more cash than Burlington because it has a better credit rating and can borrow more.
Analysts said Union Pacific may not even have to outbid Burlington to win Santa Fe, the seventh-largest U.S. railroad. It only has to bid enough to sway investors worried about waiting 18 months and the heavy debt Burlington would take on to complete the deal.
In afternoon trading on the New York Stock Exchange, Burlington was down $2 at $49.50 a share. cq/ptSanta Fe was up 62.5 cents at $17.50. cq/ptUnion Pacific was down 25 cents at $47.25.
Most analysts agree with Santa Fe that a merger with Burlington is more likely to win ICC approval. But as time passes, Santa Fe stock is accumulating in the hands of profit-minded arbitragers likely to favor Union Pacific for its faster pay off, Altherr said.
The prize is domination of western U.S. rail service. Santa Fe's route from Chicago to Southern California is more direct than Union Pacific's. No. 2 Burlington Northern, based in Fort Worth, Tex., has no such route.