Nevada County Picayune and Gurdon Times Newspaper Archive

CCIC Hears Reasons Why Rail Merger Would Be Good

Members of the Clark County Industrial Council heard why a merger between Union Pacific and Southern Pacific railroads would be good.

Joe Bell, with the Friday Law Firm of Little Rock, was involved in the merger between Missouri Pacific and UP several years ago, and is working on the UP-SP merger now.

He began his talk, Thursday, March 21, by giving a recent history of rail mergers west of the Mississippi.

According to Bell, when Burlington Northern merged with the Santa Fe line, it became the largest rail service in the nation at the time. However, should the UP-SP merger be approved by the Surface Transportation Board, it will be the largest.

When Burlington and Santa Fe merged, all major shipping points in the nation west of Mississippi were covered.

However, when Burlington started to merge with Santa Fe, Union Pacific attempted a hostile takeover of the Santa Fe lines in an effort to prevent the merger.

The takeover was unsuccessful and the winner, Bell said, was the stockholders.

Additionally, a company was created UP couldn't compete with.

The Southern Pacific line has been steadily losing money for 13 of the last 14 years.

"It's dying on the vine," Bell told the CCIC board. "It needs help. It's a natural fit for Union Pacific to step in and acquire."

An agreement to merge the two companies was made months ago, but there has been opposition to it, primarily from Conrail in the New England area.

Bell said should the UP-SP merger go through, it will then be the largest rail service in the nation.

The Kansas City Southern line, he continued, is a railroad going nowhere.

The KCS line is a good company, according to Bell, but is in market jeopardy because of the merger. KCS also objects to the joining of UP and SP.

However, a merger would mean UP-SP would provide rail service west of the Mississippi to California and into Mexico under the North American Free Trade Agreement (NAFTA).

A UP-SP company would also be covering the same territory as the Burlington Northern-Santa Fe line.

"There will be a battle for business," Bell said, "but it's what UP has to do to survive."

Arkansas and Clark County, he continued, have a stake in the merger. He said if UP is crippled by not being able to compete, the rail service will decline drastically.

He said Wall Street has said the merger would be good for UP. "The (UP) stock has gone up for the last six months."

Opponents to the merger, Bell said, are shippers who think when the Southern Pacific is eliminated competition will be lost and they will be stuck with one carrier who will have a monopoly on their business and can charge whatever it wants.

"Southern Pacific is a goner without the merger," Bell said. "They are limited to how long they can continue without closing.

"There will be a loss of jobs with the merger," he continued, but said the workers are protected under the disenfranchised employee act. Under this act, any worker who loses their job because of the merger will continue getting a paycheck for six years, along with all benefits they had prior to the merger.

The Surface Transportation Board, which was created when the Interstate Commerce Commission was disbanded, will make the final decision on the merger. The STB, called the "Surf Board", is a three person committee dealing with transportation issues.

Conrail has asked the Cotton Belt portion of the Southern Pacific line be dealt with separately. However, UP has said if the Cotton Belt doesn't go with SP the merger will be called off.

The Cotton Belt runs from El Paso, Texas through Louisiana and Arkansas up to Chicago, Ill. and Kansas City, Mo.

"This is a crucial aspect for UP."

He said in order to preserve competition, UP-SP would enter into a trackage agreement with Burlington Northern. In effect, this would mean the Burlington line would be leasing the right to operation on track owned by UP-SP.

This way, he said, shippers would have the choice of shipping with Burlington or the UP-SP line. It would also insure the shippers getting the best price possible.

The STB, he said, will consider the attitude of all parties involved. "We're saying this (the merger) is in the best interest of the region."

Bell then asked members of the CCIC to sign a statement to be sent to the STB for the record saying they favor the merger.

Where Clark County, Arkadelphia and Gurdon are involved in the merger, Bell said, will be in how much faster shipping can occur in the area.

He said there is currently a bottleneck of traffic around Arkadelphia because there are too many trains going through.

A merger, however, would allow UP to use its lines to ship goods north, while traffic on the SP lines could carry cargo south. This, Bell said, would relieve congestion and increase efficiency.

In theory, he continued, goods would get from place to even faster. It will also be easier for local shippers to get their goods running the rails.

According to Bell, KCS will most likely be given market protection to prevent UP-SP or Burlington-Santa Fe from completely swallowing it up and taking its business. But, he said, how this will be done is unknown at this time.

Turning toward Conrail, Bell said it is not a viable alternative to a UP-SP merger. This is because Conrail, primarily a northeast rail line, has attempted to abandon one-third of its system and has auctioned off its hopper fleet.

The lack of hopper cars causes problems for shippers. Bell said Conrail officials ask shippers to buy their own hopper cars. These cars, he continued, cost $1 million each.

If the merger between UP-SP is approved, Bell said, the company will have about 32,000 hopper cars and 75,000 units overall.

He said Conrail appears to be the target of a takeover by other northeast rail companies, and may be working to stop this merger in order to avoid being taken over itself, or to artificially drive up its stock prices in case of a takeover to make the company appear to be worth more.

Bell said the line between Gurdon and Camden will most likely be closed if the merger goes through as hoped. However, the company hopes to keep the tracks intact

By keeping the tracks available, Bell said, there could be some development along this line. He said the section could be utilized as an excursion route between the two cities, much as the old Reader Railroad was for a while.

"We don't know how many tourists it would attract," he said, "but it seems to work in north Arkansas.

"The pluses more than offset the minuses in the overall picture. It's important for Arkansas and Clark County for Union Pacific to remain a viable carrier. It's a well-operated railroad company, and we would be more responsive t