Business Notes RAILROADS

The idea of a railroad as small as the Denver & Rio Grande Western (2,500 miles of track) trying to swallow one as big as the Southern Pacific (13,000 miles) conjures up memories of the Little Engine That Could. Yet the Rio Grande has emerged as the front runner in a heated competition to acquire Southern Pacific.

Four years ago Southern Pacific agreed to merge with the Santa Fe railroad to form what would be the second largest U.S. line, after Burlington Northern (25,500 miles). The Interstate Commerce Commission, though, ruled that the combination stifled competition and that the new Santa Fe Southern Pacific Corp. must dispose of one of its lines. Last week the company said it would sell the Southern Pacific to the Rio Grande for $1.8 billion, creating the fifth biggest U.S. railroad.

The Rio Grande line, which runs from Utah to Missouri, is a good match for the Southern Pacific system, which stretches from Oregon and California over to Texas and Louisiana and up to Missouri. But opponents of the deal may try to persuade the ICC to block it. Kansas City Southern Industries wants to buy Southern Pacific, and so do union leaders representing the railroad's employees.