SOUTHERN PACIFIC RAILROAD
Southern Pacific Historical Society.
San Leandro Historical Railway Society.
Central Pacific Railroad Photos
Rail Merger OKd -- End of the Line for Southern
Pacific Railroad.
Kenneth Howe, Chronicle Staff Writer
Thursday, July 4, 1996
A federal agency gave approval yesterday to Union
Pacific's $5.4 billion acquisition of San
Francisco-based Southern Pacific Rail Corp.
The decision spells the end of the line for SP, which
has been a corporate power in California since the
days of Abraham Lincoln.
The Surface Transportation Board, a unit of the
Department of Transportation, unanimously approved
the controversial merger.
The most expensive rail deal in history will create the
largest freight rail system in the United States, with a
31,000-mile network of track serving 25 states, Mexico
and Canada.
Union Pacific said the merger also will cost about
3,500 jobs from the combined 72,000-employee work-force.
In San Francisco, the merger will throw 1,300 Bay
Area SP workers out of work, prompt the sale of the
railroad's landmark 1917 headquarters building at One
Market Plaza and erase the Southern Pacific name.
The headquarters of the combined company, which is
expected to continue under the name Union Pacific,
will be in Omaha, Neb.
``The loss of Southern Pacific should give us pause,''
said State Librarian Kevin Starr. ``Here we have the
end of one of the first great modern corporations in
the country.''
The mood at SP, whose workers had been expecting
the merger to be approved, was subdued. ``We knew
we were going to be out of a job,'' said one 26-year
veteran of the railroad. ``But it's still scary because
we face an uncertain future. We don't know how long
we'll continue in our jobs or what our severance will
be.''
The Surface Transportation Board will deliver its final
written approval August 12. Barring any last-minute
efforts to block the deal, Union Pacific is expected to
begin swallowing up its historic rival in October.
SP's largest shareholder, Philip Anschutz, will make
out handsomely. The Denver oil billionaire acquired
SP in 1988 for $1.02 billion, most of which he
borrowed. Over the next seven years, he sold off more
than $2 billion in rail assets to pay down debt.
A few years ago Anschutz sold a big stake in the
company in a public stock offering.
Anschutz and his family still own 25.8 percent of SP
and, based on yesterday's stock price, stand to get
about $1.2 billion in cash and stock from the deal.
UP's stock rose 5/8 to 72 3/4 yesterday on the New
York Stock Exchange, while SP shares gained 1 1/2 to
28 1/4. SP shareholders will receive cash and UP stock
worth $28.66 per share, based on yesterday's prices.
Contrary to speculation, the Surface Transportation
Board did not require that the railroads divest any
properties. However, the board did impose 35
conditions on the merger. Most of them require the
railroads to let competitors including Burlington
Northern Santa Fe Corp. to run trains over SP and UP
tracks.
At a press conference, Drew Lewis, Union Pacific's
outgoing chairman, said the conditions ``are well
within the confines of what we originally
anticipated.''
``The board pretty much gave Union Pacific
everything they wanted,'' said Scott Flower, a rail
analyst with PaineWebber in New York. The proposal
drew heated opposition since it was first announced
last August.
The U.S. Justice, Transportation and Agriculture
departments all opposed the deal. Justice estimated
that freight rates could climb 19 percent for some
shippers as competition diminishes, a prospect the two
railroads said was hogwash.
However, the merger will result in two railroads
controlling a huge portion of Western freight traffic.
The new Union Pacific and it chief rival -- Burlington
Northern Santa Fe -- together will haul 90 percent of
the freight west of the Mississippi River, according to
some estimates.
Merger supporters said UP and SP needed to merge to
compete with Burlington Northern and Santa Fe
Pacific, which combined last year to form a huge rail
concern that now dominates freight service in the
West.
SP's ability to survive on its own also was questioned.
An aborted merger in 1986 with Santa Fe left SP with
a weakened balance sheet and a deteriorating track
network. SP has posted operating losses in 14 of the
past 17 years.
Explaining the Surface Transportation Board's
decision, Chairwoman Linda Morgan said,
``Government's role in today's world, in my view,
should be to work more in partnership with industry
to empower it to take the necessary steps to compete.''
The merger will leave the nation with only five big
freight railroads: UP and BNSF in the West and CSX,
Conrail Inc. and Norfolk Southern Corp. in the East.
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