Railway Merger Plans
TURNING back to plans formulated nearly five years ago, the Baltimore & Ohio Railroad and the Chesapeake & Ohio Railway have just taken the most progressive step yet made toward consolidation of carriers in the Eastern territory.
These two roads have filed with the Interstate Commerce Commission proposals for the acquisition of certain independent lines that will bring their mileage, terminal facilities and earnings to a size enabling them to compete on fair terms with the two outstanding Eastern systems, the New York Central and the Pennsylvania.
The groupings proposed are almost identical with those submitted at an informal conference with the I.C.C. in October, 1924. The Baltimore & Ohio asks permission to acquire the Reading system, Central Railroad of New Jersey; Chicago, Indianapolis & Louisville, Western Maryland, Wabash, Ann Arbor, Buffalo, Rochester & Pittsburgh, Buffalo and Susquehanna, Detroit, Toledo & Ironton, and Lehigh & Hudson River. The 'Chesapeake & Ohio seeks control of the Hocking Valley, Pere Marquette, Erie and New York, Chicago & St. Louis, lines which the Van Sweringen brothers have had such a stormy time trying to consolidate; also the Virginian, Delaware, Lackawanna & Western, Bessemer & Lake Erie, Wheeling & Lake Erie, Pittsburg & Shawmut, Pittsburg, Shawmut & Northern and Chicago and Eastern Illinois.
In addition, both seek joint control, with one or more of their competitors, of the following bridge and terminal lines: Delaware & Hudson, Lehigh & New England, Montour Railroad, Pittsburg, Chartiers & Youghiogheny Railway, Chartiers Southern, Monongahela Railway, Pittsburg & West Virginia, Detroit & Toledo Shore Line and West Side Belt Railway. Various trackage rights or leases and new connecting short lines also are requested.
Those acquisitions would create a Chesapeake & Ohio system aggregating 15,400 miles including trackage rights and jointly controlled lines, or a mileage of 13,148 with an investment of $2,500,000,000 in solely controlled lines. The Baltimore & Ohio group would total 14,141 miles with an investment of $2,192,000,000 in road and equipment. Eastern mileage assignable to the Pennsylvania and New York Central systems on this basis would be about 16,000 miles each. The progressive nature of the C. & 0. and B. & 0. applications lies not in the matter presented but in the manner of its presentation.
The petitions represent an attempt to break a stalemate created by several factors.
Under the Transportation Act of 1920 the Interstate Commerce Commission is required to adopt a plan for consolidating railway properties into a limited number of systems capable of rendering service economically and earning substantially equal rates of return upon their property values. Between 1921 and 1923 the commission conducted public hearings on a tentative plan outlined by Professor W. Z. Ripley. It has not yet adopted the final plan required by law, and the Parker and Fess bills which would relieve it from preparing a final plan and permit voluntary consolidations have failed to reach a vote in Congress.
The Ripley plan called for nine or eight systems in the East, according to whether the New England lines were absorbed or made into a separate system. It became apparent that the Pennsylvania, New York Central and B. & 0. were three logical nuclei for systems, and the rise of the Van Sweringen brothers with their Nickel Plate consolidation plan presented a fourth. These systems, therefore, went to the commission in 1924 and again early in 1925 to plead informally for consideration of a four-party plan for the East.
ON THE face of things, it is a sign of small progress when the C. & 0. and the Baltimore & Ohio revert to plans five years old. The intervening years have been, however, valuable in clearing up many extraneous issues, threshing out points of doubt and seasoning opinions. For one thing, the threat of a division of mileage into five unequal systems has been fairly well eliminated. L. F. Loree, president of the Delaware & Hudson, claimed very serious attention by acquiring control of the Wabash and Lehigh Valley for his road, and had to be admitted to the lengthy secret conferences of trunk line executives in 1927 and 1928.
The D. & H. Company sold out its Wabash and Lehigh holdings last year to the Pennsylvania at a handsome profit of some $20,000,000, and is preparing now to segregate its own railroad properties into a new corporation.
The Taplins with their dreams of aggrandisement for the Pittsburg & West Virginia remain to be contended with, though their fight for a Great Lakes-to-the-Atlantic route involves only three small lines.
The most revolutionary feature of the recent applications is the admission that no terms or conditions have been considered for acquisition of the various lines by the C. & 0. and B. & 0. They ask only for approval of the mergers in theory, leaving the case open for later submission of terms. The wisdom of the course may be illustrated by the expensive stock market battles for control of roads, often followed by disapproval of merger by the commission. It may be argued, of course, that throwing the plan into the open will be the signal for even greater speculative excesses in rail stocks. The answer is twofold: first, a working control of practically all of the roads sought by the C. & 0. and B. & 0. can be found closely held somewhere; and second, before the time is ripe for bargaining it appears likely that there will be new legislation to weaken the nuisance value of objecting minorities by providing for purchase of their securities at arbitrated value.
Consolidation, even in only the Eastern section of the country, is not going to sprint to the finish. It will be a matter of years yet. In the course that the present cases will have to take, the greatest interest attaches to the reactions of the New York Central and Pennsylvania. There is a possibility that the Central, which has co-operated with the C. & 0. and B. & 0., will come along with an application for its own enlarged system. The Pennsylvania has never looked with favor on the plans of the other three. Its own idea of a four-party plan is to take about 19,400 miles for itself, including the Norfolk & Western, the Chicago & Eastern Illinois; the Lehigh Valley, the Buffalo & Susquehanna, the Grand Trunk Rail-way Western lines and one quarter of the Reading and the Jersey Central. The Central group then would be about 15,100 miles ; the Baltimore & Ohio, 11,400 ; and the C. & 0., 12,500.
Spurred by the recent pressure of criticism from the administration and others, the I.C.C. probably will give the pending cases early consideration. It will be another month or two before they can be assigned for hearings, which are expected to carry over until late this year. Consolidation has been taken out of the speculative field and placed on an economic basis alone. It is squarely up to the commission now to act, and not alone to say yes or no to merger applications but also to say, if a plan is considered inadvisable, just what would be acceptable to them.
Source: "Outlook & Independent" March 6, 1929