Power Play

A major power struggle to merge the nation's Eastern railroads into two massive networks built around the Pennsylvania and the New York Central broke into the open last week. Forcing the fight was the announcement that directors of the Norfolk & Western Railway and the Nickel Plate Railroad had agreed to merge. Since the Pennsylvania Railroad owns about 33% of the Norfolk & Western, railroaders saw the move as a step toward a giant Pennsy network.

The merger alarmed the New York Central, which wanted a three-way merger with the Chesapeake & Ohio and the Baltimore & Ohio (TIME, May 30). But the C. & O. wanted to go it alone, offered to buy B. & O. stock as the first step toward merger. Last week, as the C. & O. mailed its offer to B. & O. stockholders, New York Central President Alfred Perlman jumped into action. He appealed to the Interstate Commerce Commission to con duct a study to establish new ground rules for Eastern rail mergers, hoping thus to block the other roads moves until he can strengthen his own position. He also said he wants to make an offer to B.&O. stockholders for 50% of the road's stock.

Better Offer? Central directors will meet this week to decide on the deal and what price they will pay. They will have to hustle. The C. & O. has already hired Merrill Lynch, Pierce, Fenner & Smith to solicit B. & O. stockholders to accept its offer. The C. & O. will exchange one share of its common (worth about $63) for each if shares of B. & O. common or each share of B. & O. preferred. Perlman said his road is in a position "to make a better offer."

With some 20% to 30% of the B. & O. stock said to be held by Swiss banking interests, and the better growth possibilities of the Central, Wall Street believes that it will be hard for the C. & O. to acquire the 80% it needs for a tax-free stock trade. It would be especially difficult if the Central board goes along with Perlman's view that about 10% of the

B. & O. stock should be bought by interests friendly to the Central. Perlman says all he wants is an equal interest with the

C. & O. in the B. & O., as a prelude to a three-way merger.

But Perlman may have a hard time getting the C. & O. to accept him. In its application to the ICC to merge with the

B. & O., the C. & O. said that "inclusion of any additional Eastern railroad in this two-way affiliation would destroy this constructive movement at this time." One

C. & O. objection: it has a long-term debt of $393 million and makes fat and steady profits, while the Central has a debt of $976 million and has a spotty earnings record. A merger of the C. & O., the nation's biggest soft-coal carrier, and the

B. & O. would displace the Central from a strong position in the East and would create the nation's second largest railroad, with more than 11,000 miles of track and assets of $2.3 billion, ranking only below the Pennsy.

Tough Competition. Merger of the Nickel Plate and the Norfolk & Western would give the N. & W. access to the Great Lakes, and create a network stretching from St. Louis, Chicago, Cleveland and Buffalo to the Pocahontas coal region of the Virginias. The merged roads would rank among the nation's top ten, have a 4,964-mile network with assets of $1.4 billion. Under the terms of the merger agreement, one share of Nickel Plate common would be exchanged for .45 of a share of Norfolk & Western. Since the two lines do not now link, the merger is contingent upon their obtaining an agreement from the Pennsy to connect over a m-mile link in Ohio.

A future Pennsy acquisition of the merged roads would be an obvious move to strengthen the Pennsy empire in the midst of the territory of the Central, the C. & O. and the B.& O. It would give the Pennsy such a huge advantage that the Central would find it hard to compete.

The Great Northern Railway and Northern Pacific Railway--which cross the continent from Seattle to St. Paul on almost parallel routes--last week announced that they are close to a firm agreement to merge. A combination of the two roads, bitter rivals in the days of the empire builders, would produce a system with 17,492 miles of track, the longest in the U.S. The two roads' revenue last year amounted to $778 million, second only to the Pennsylvania's. Included in the merger would be the railroads controlled by the two lines: the Chicago, Burlington & Quincy (1959 revenues: $263 million), the Spokane, Portland & Seattle Railway, the Colorado & Southern, and the Fort Worth & Denver.

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