Railroad Mergers

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Railroad mergers have taken place right from the beginning of railroading.

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1) In the 1960s, the entire rail industry was struggling because of changes in the US economy and the inability, because of regulation, to quickly re-orient to serve new markets. But railroads in the Northeast were in the worst shape, for several reasons that included short average length of haul, high terminal costs, and deficits on passenger service. The Interstate Commerce Commision after 1958 began permitting parallel mergers that would in theory allow railroads to merge and reduce capacity, but in practice abandonment approvals were difficult to get. In the Northeast, where rail market share was shrinking more quickly than elsewhere, this was a major problem.

2) The biggest parallel merger of all was Penn Central, and of course it failed. It was at the time the largest railroad in the US by mileage and revenue, so expecting some other railroad to merge with it was a fantasy. Sales of individual lines were generally made very difficult by the need for ICC permission, which meant that other railroads would try to block any line sales that they perceived to be bad for them. The Rock Island tried to sell the Golden State Route to the SP in the mid-1970s. The sale finally happened after the Rock went bankrupt in 1981.

3) So with Penn Central threatening to cease operations and leave major cities without rail service, the government stepped in. The 3R Act (1973) established USRA to plan for a new railroad to take over parts of the six bankrupts. The 4R Act of 1976 made some limited reductions in rail regulation. Conrail debuted with lines from L&HR, CNJ, E-L, RDG, and of course PC. But much trackage was left with the bankrupt estates, and was eventually sold or abandoned, sometimes after a period of operation as “subsudized light density lines”.

4) Conrail received about $2.5 billion in Federal assistance to overcome many years of deferred maintenance on track and equipment. Nevertheless, the company struggled to make money until two important things happened — the Staggers Act that largely deregulated railroads in 1980, and the Northeast Rail Services Act of 1981 (NERSA), which required states to set up authorities to operate commuter service rather than contract with Conrail. This, and the limitation on so-called “flowback” provisions that allowed train crews to move between freight and passenger service, finally enabled Conrail to make some meaningful cuts in its employment roster.

5) By 1998, when NS and CSX acquired it, Conrail had 20,000 employees and 12,000 route miles, down from 100,000 employees and 25,000 route miles in 1976. It is fair to say that Conrail shrank its way to success, leaving a lot less rail service in the Northeast.

6) The US Government eventualled settled a suit by the bankrupt estates over the value of their assets by paying out $7 billion. So the Conrail experiment cost about $9.5 billion. That cost was high enough that Congress realized that nationalization of the rail industry would be very expensive, and they opted for deregulation instead. That has worked very well.

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Possible Railroad Mergers in 2014 and beyond

Canadian Pacific Railway CEO and Director E. Hunter Harrison told investors last week that he expects rail consolidation among the largest North American railroads within six years, but his ideas are more than just the usual rumors. One of which is that Kansas City Southern Railway, the smallest of the major railroads, will merge with one of the five other Class I carriers or a third-party that merges two railroads. The major benefit to a KCS buyer would be gaining the only cross-border rail network that connects the U.S. to Mexico’s rapidly growing manufacturing base.

What if each of the western U.S.-based Class I railroads — BNSF Railway and Union Pacific Railroad merge with an eastern counterpart. BNSF or UP, for example, could merge with CSX Transportation or Norfolk Southern Railway. Such a merger wouldn’t “impact the competitive environment,” and shippers would gain better service by having two transcontinental lines. Shippers with access to only one line, who refer to themselves as “captive shippers,” could benefit as well.

Under a dual transcontinental merger scenario, the need for handoffs at the Mississippi River or in Chicago would be reduced, speeding up transit times. The mergers also would reduce corporate costs, because two sets of management would be redundant, and some railyards could be consolidated.

Traditionally, Chicago was the Rail Capital of the United States. Will new Chicago Bypasses develop? What about companies like UPS who rely on Chicago traffic?

Union Pacific was created by Abraham Lincoln and Congress to “span the Continent”.Will this happen? A transcontinental merger wouldn’t create major cost savings, nor would it greatly improve service, because interline traffic generally runs smoothly. Railroads’ differing cultures would only complicate a process. I remember when CSX had just taken over the Selkirk Yard near Albany. There was a blizzard and Selkirk shut down. CSX sent a team of executives to solve the problem. They arrived at the Albany County Airport (built in the 1930’s and not shut because they used strange contraptions called snow plows. These characters arrived in raincoats and rubbers and carrying umbrellas. The most likely consolidation scenario is a merger or acquisition involving KCS, but the railroad’s high valuation likely is keeping suitors at bay.

Acquiring or merging with KCS seven or eight years ago before the railroad’s cross-border business began to take off would have made sense.

The greatest potential for rail consolidation isn’t in the Class I industry but within the small lines that connect to the major railroads. Let’s start with Florida East Coast Railway. Not likely. They are gearing up for the Panama Canal expansion plus their parent company is building a Miami to Orlando passenger train. Just announced purchase of 24 new GE locomotives.

Genesee & Wyoming, an owner and operator of short lines and regional freight railroads, is best poised to swallow up other lines because the company has access to some $400 million in capital and is the largest strategic player, according to a Stephens research note. Of the 459 privately owned U.S. regional and short lines, which make up about 80 percent of the market, G&W’s network connects with 48 of the lines. Like the larger railroads, many of G&W lines, which total 98 in North America, are seeing intermodal traffic growth.

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Railroad mergers have taken place right from the beginning of railroading.

Being such an extensive subject, I have tried to zero in on those in the Northeast in this century. The two peak periods for mergers have been the 1920’s and the 1960’s. The merger movement of the 1920’s was pushed by the Interstate Commerce Commission (ICC) which was in turn pushed by Congress.

The major piece of legislation was the Transportation Act of 1920 which returned private management to the railroads after government control forced by World War I. Railroads with satisfactory dividend records were referred to as “strong”; those without were called “weak”. In the ten years preceding government control, 60% of the traffic of the country was handled by strong roads. The weak roads consisted of several larger roads, the country’s short lines, and the New England roads. The Transportation Act aimed at combining to provide a fair return to stockholders.

The attempts at consolidation did not come about because private enterprise had a mind of its own and did not want to follow government requests, especially if profits were concerned. Other factors were strong individuals like L.F. Loree of the D&H and Cleveland’s Van Sweringen brothers who were not adequately included in the consolidation plans.

1920, the ICC engaged Professor William Ripley of Harvard to develop a tentative plan for railroad consolidation. It reduced all US railroads to 24 systems. The plan advocated geographic monopolies such as New England and also advocated forced dismemberments. The ICC held hearings across the country. Lots of inconclusive debates occurred such as between B&O and New York Central over who got Jersey Central and Reading. In conclusion the plan was a failure.

The East was the area that could have benefited most from consolidation. The Pennsylvania RR was against any erosion of its power. Four powers controlled most of the roads: New York Central, Pennsylvania RR, B&O, and the Van Sweringen holdings. There was a “Fifth System” debate as to what to do with the railroads not controlled by the four “powers”. The most popular scheme was proposed by Leonor Loree, president of the D&H, in which he tried to combine D&H with Lehigh Valley and Wabash. The “powers” operated through holding companies with the Van Sweringen brothers using the Alleghany Corporation and the Pennsylvania RR forming Pennroad Company.

Independently, John E. Oldham made a proposal backed by the American Bankers Association which was published in the February 20, 1920 “NATION’S BUSINESS”.

Railroad Mileage
NEW YORK CENTRAL SYSTEM
New York Central 12298
Central of NJ 683
New York, Ontario & Western 568
Ulster & Delaware 129
Total NEW YORK CENTRAL SYSTEM 13678

 

Railroad Mileage
BUFFALO SYSTEM
Erie 2397
Wabash (less lines west of St. Louis) 3031
Pere Marquette 2272
Nickel Plate 570
Delaware & Hudson 883
Lackawanna 956
Buffalo, Rochester & Pittsburgh 587
Bessemer & Lake Erie 204
Pittsburgh & West Virginia 63
Elgin, Joliet & Eastern 789
Buffalo & Susquehanna 252
Total BUFFALO SYSTEM 12004

 

Railroad Mileage
PENNSYLVANIA SYSTEM
Pennsylvania (incl Long Island, etc) 11384

 

Railroad Mileage
NORFOLK & WESTERN/CHESAPEAKE & OHIO
Chesapeake & Ohio 2726
Norfolk & Western 2062
Virginian 507
Carolina, Clinchfield & Ohio 271
Total NORFOLK & WESTERN/CHESAPEAKE & OHIO 5566

 

Railroad Mileage
LINES CONTROLLED BY TWO OR MORE SYSTEMS
Lehigh & Hudson River 97
Monongahela 92
Richmond, Fredricksburg & Potomac 88
Washington Southern 36
Total LINES CONTROLLED BY TWO OR MORE SYSTEMS 313

 

Railroad Mileage
NEW ENGLAND SYSTEM
Rutland 463
Boston & Maine 2286
Maine Central 1220
Bangor & Aroostook 632
New Haven (incl Central New England) 2302
Total NEW ENGLAND SYSTEM 6903

Oldham’s plan was well thought out and unique. He recognized the problems of New England. He preserved competition by ensuring that larger cities were served by more than one system. For instance, Albany and Syracuse would have been served by two systems; Erie and Richmond by three; New York and St. Louis by four; and Chicago by five. After 20 years of evasion, Congress passed the Transportation Act of 1940. It gave the railroads exactly what they asked for-voluntary consolidation. The result was that virtually no consolidation took place at all for several years.

No railroad had used the planning experience of the 1920’s to its advantage better than the Pennsylvania. It had wrapped its tentacles around a number of important eastern lines like the Norfolk & Western, Lehigh Valley, Wabash and New Haven so that very little consolidation could take place without its approval.

The Pennsylvania used an investment device called the Pennroad holding company to make strategic purchases of several railroads. Unfortunately the Depression came along and the stockholders lost a lot of money. It gave the railroad a black eye.

The Van Sweringen empire fell apart in the 1930’s. Out of the wreckage, Robert Young emerged to control the C&O through the Alleghany Corporation. In 1947 the Pere Marquette was merged into the C&O. Young took over the New York Central in 1953.

The merger movement of the 1960’s was driven by the railroads themselves. It came about because of the declining profits of certain roads and the desire for operating efficiencies by others. This period of mergers continued until creation of CONRAIL in 1976.

The Pennsylvania and New York Central announced a merger in 1957. While this was called off and then resumed, it did not finalize until ten years later. I n the meantime it caused all the other Eastern roads to study who they would merge with.1960 saw the merger of the Erie and the Lackawanna. While these two roads were parallel for many miles, the operating efficiencies of a merger were never fully realized.

The bankruptcy of Penn-Central in 1970 brought down the rest of the weak roads of the East. Lehigh Valley, dependent on Penn Central for advances that were no longer forthcoming, fell a month later. Reading was pushed over the edge thanks largely to environmental concerns over high-sulfur coal. Erie Lackawanna went belly up in 1972-with Hurricane Agnes being the final straw. The Lehigh & Hudson River fell when their bridge traffic from Maybrook over the Poughkeepsie Bridge stopped. Finally in 1976 CONRAIL was formed.

Many of the problems of the 1920’s and of the 1960’s that caused and/or prevented rail consolidation were the same. For instance, the “terminal railroad” characteristics of New England were similar in both periods. Basically, New England’s problem was many short hauls and more incoming traffic than outgoing. A problem of the 1960’s that had not been present in the 1920’s was the decline from coal hauling, especially among the “Anthracite Railroads” like the DL&W.

“THE RAILROAD MERGERS AND THE COMING OF CONRAIL” by Richard Saunders (1978) is an exhaustive study of the entire rail merger movement.

Another important source of material is John W. Barriger‘s 1956 book “SUPER-RAILROADS FOR A DYNAMIC AMERICAN ECONOMY”.

The idea of a CONRAIL is contained in Edward Hungerford’s 1944 novel “A RAILROAD FOR TOMORROW”. This book is a futuristic book of the 1960’s in which the railroads are in deep trouble and Congress charters a corporation.

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Additional Resources on Railroad Mergers

To understand the complexities of these proposed mergers, you really need to read the full article above.

You may want to find a copy of “The Anthracite Railroads, A Study in American Railroad Enterprise” by Jules I. Bogen around 1925.

Several consolidation plans are listed.
ICC Plan
B&O includes Reading, CNJ
Erie includes DL&W, NYS&W, D&H
LV-NKP
New England includes NYO&W

Alternatively the DL&W and D&H could be included in New England-Great Lakes

Ripley Plan
B&O includes Reading, CNJ
Erie includes LV, D&H, NYO&W, NYS&W
DL&W-NKP

The “giant trunk lines” had their own plan.
B&O still gets Reading and CNJ
NYC gets LV
DL&W goes to NKP system already including Erie and C&O

But the D&H was proposing to build its own system. In 1925, while the ICC was looking at a consolidation of the eastern roads into 4 systems. the Delaware & Hudson under Loree proposed a fifth system: D&H, LV, BR&P, W&LE, WAB and NYP&C (a super RR to link the NY metro area and the cities of Pittsburgh & Chicago).

Floyd Mundy edited annual editions of THE EARNING POWER OF RAILROADS, for the James Oliphant Company for a couple of decades (in the 40’s it is titled OLIPHANT’s EARNING POWER OF RAILROADS reflecting Mundy’s demise). These volumes contain a five year summary of each railroad’s assets and performance. From the late 20’s through the Great Depression they contain data on the proposed rationalization of the railroads based upon the federal governments committee established under the chairmanship of William Ripley. Mundy summarizes the merger partners, and notes in his coverage of each carrier where it is assigned in that committees report.

Ripley(William Z.) was an authority on railroad economics, and produced several books and many articles dealing with all aspects of railroad financial affairs. He also produced books in other areas, and had a less than prescient best seller called,” WALL STREET and MAIN STREET”, that he knocked out just before the roof fell in 1929. Regardless, under the auspices of the Feds he headed up the efforts to solve the, “weak road-strong road” problem. It wasn’t acted upon for a collection of reasons that are probably of little interest to the average railfan. Suffice it to say that even the matter of whether a road was weak or not, and even if it was… was that necessarily bad, for everyone – became issues.

The assumption implicit in creating these merged groups was that providing the best transportation possible to the area served was a desirable end. Not necessarily, for all involved. Take the Erie, as an example. All its stock was held by banks, trust, or insurance companies and it did not pay a dividend for over seventy consecutive years on the stock these firms owned. Why did they own this stock that never paid anything? In order to control the expenditures of the Erie.

All the equipment trusts, and loans for improvements in ROW, and the like… went through them. If the Erie lost money, but kept on generating 10% per annum equipment trust certificates, it was better for the Chemical Bank and Trust Company, than if it was a profit maker, paying taxes on profits. So the owners of Erie had more to lose if Erie became a traffic generator in Indiana, Illinois and western Ohio, under rationalization. This is but a single example of why powerful interests that had cross purposes with the goal of providing better services to wider areas, militated against the success of professor Ripley’s group.

By the mid-1920s, though, the Van Sweringen brothers owned close to 60% of Erie common, much of it held in the name of Chesapeake & Ohio. This too was eventually wiped out by the bankruptcy of 1938.

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Railroad Mergers by Date

(Includes only those railroads related to pages included on our site)

08-01-1927 CHTT (Chicago Heights Terminal Transfer) sold to C&EI.

06-06-1947 PM (Pere Marquette) merged into C&O.

12-01-1949 W&LE (Wheeling & Lake Erie) leased by NYC&STL (New York, Chicago & St.Louis- ‘Nickle Plate Road’)

01-28-1960 AT&SF & PRR gain joint control of TP&W (Toledo, Peoria & Western).

10-17-1960 DL&W and ERIE merge creating EL (Erie-Lackawanna).

10-31-1961 L&NE (Lehigh & New England) sold to CNJ.

05-17-1962 PRR gains control of LV (Lehigh Valley).

10-16-1964 NYC&STL (New York, Chicago & St.Louis – ‘Nickle Plate Road’) merged into N&W, WAB (Wabash) & P&WV (Pittsburg & West Virginia) leased by N&W, and N&W gains control of AC&Y (Akron, Canton & Youngstown).

01-03-1967 C&O gains control of CSS&SB (Chicago South Shore & South Bend).

05-12-1967 MP gains control of C&EI.

07-01-1967 SAL (Seaboard Air Line) & ACL merge creating SCL.

02-01-1968 NYC & PRR merge creating PC (Penn Central).

04-01-1968 N&W gains indirect (Dereco) control of EL.

07-01-1968 N&W gains indirect (Dereco) control of D&H.

07-01-1968 CGW (Chicago Great Western) merged into C&NW.

12-31-1968 NYNH&H (New York, New Haven & Hartford) merged into PC.

06-06-1969 Evansville line (eastern side) of C&EI sold to L&N, Chicago to Woodland Jct. becomes joint with MP.

03-02-1970 GN (Great Northern), NP (Northern Pacific) & CB&Q (Chicago, Burlington & Quincy) merge creating BN; also leased SP&S (Spokane, Portland & Seattle).

05-01-1971 Amtrak takes over most inter-city passenger trains (holdouts – SOU, CRI&P, GA, & D&RGW).

08-01-1971 CI&L (Chicago, Indianapolis & Louisville – ‘Monon’) merged into L&N.

– -1972 B&P (Boston & Providence) merged into PC.

08-10-1972 IC & GM&O merge creating ICG.

02-03-1973 P&W (Providence & Worchester) resumes independent operation.

04-01-1976 PC, LV (Lehigh Valley), CNJ (Central Railroad of New Jersey), EL, RDG (Reading), L&HR (Lehigh & Hudson River), L&NE (Lehigh & New England), CR&I (Chicago River & Indiana), PRSL (Pennsylvania-Reading Seashore Lines), BCK, NY&LB (New York & Long Branch), etc.) merge creating CR (Conrail).

10-15-1976 C&EI and T&P absorbed into MP.

01-12-1977 VIA Rail Canada created as CN subsidiary.

04-01-1978 VIA Rail Canada becomes separate crown corporation.

09-29-1978 VIA assumes operation of CP passenger trains.

03-31-1980 CRI&P ceases operations.

06-24-1980 GTW gains control of DT&I (Detroit, Toledo & Ironton).

11-01-1980 Chessie System (C&O-B&O-WM) & SCL combine creating CSX Corp.

06-16-1981 GTI (Guilford Transportation Industries) purchases MEC.

09-01-1981 IT (Illinois Terminal) merged into N&W.

10-01-1981 D&TS (Detroit & Toledo Shore Line) merged into GTW.

01-01-1982 AC&Y (Akron, Canton & Youngstown) absorbed into N&W.

06-01-1982 Norfolk Southern Corporation created by N&W and SOU, NS Corp. to control N&W and SOU.

12-22-1982 UP gains control of MP & WP.

06-28-1983 GTI purchases B&M.

01-01-1984 GTW absorbs DT&I.

01-01-1984 ATSF absorbs TP&W.

01-05-1984 GTI gains control of D&H.

09-01-1984 Amtrak absorbs WT (Washington Terminal Co.).

12-24-1985 CC (Chicago, Central & Pacific) created by ICG line sale.

01-01-1986 MILW (Chicago, Milwaukee, St.Paul & Pacific) merged into SOO LINE.

01-01-1987 TH&B (Toronto, Hamilton & Buffalo) merged into CP.

03-25-1987 CR sold to public via stock offering.

06-16-1987 WP absorbed into UP.

10-11-1987 New WC (Wisconsin Central) created by SOO line sale.

08-12-1988 UP gains control of MKT (Missouri-Kansas-Texas – ‘Katy’).

05-17-1990 New W&LE (Wheeling & Lake Erie) created by N&W line sale.

12-05-1990 RBM&N (Reading, Blue Mountain & Northern) created by CR line sale.

01- -1991 CP gains control D&H (Delaware & Hudson).

08- -1991 MA&N (Mohawk, Adirondak & Northern) created by CR line sale.

12-13-1994 UP gains minority control of C&NW through stock acquisition.

09-11-1996 UP gains control of SP.

More dates added as we research and cross-check

Link to “Conrail Merger Family Tree”

“Union Pacific Merger Family Tree”

“Pan AmMerger Family Tree”

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WOW, this would have made a difference! It would have stopped the Penn Central mess.
(Photo clipped from an old New York Central Headlight)

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A Typical Result of Merger Gone Wrong?

An interesting result of the Penn Central Merger!

The former New Haven Railroad Shore Line is today owned by:

1) Amtrak from Penn Station, NY to New Rochelle, CT.
2) The State of New York from GCT to the CT line.
3) The State of Connecticut from the NY line to New Haven.
4) Amtrak from New Haven to the MA line.
5) The Commonwealth of Massachusetts from the RI line to Boston.

All former NH stations, land, and parking lots in MA on the Shore Line are owned by Mass. (Rt. 128 may be the exception). Any further expansion of the parking lots are usually owned by the towns.

Amtrak dispatches all trains on the Shore Line East of New Haven. Metro-North does so West of New Haven (except from New Rochelle to Penn Station).

The State of Rhode Island owns a couple F40PH-2C’s and perhaps some coaches used on the MBTA…which is why the MBTA services Providence.

So instead of one cooperative effort, you have 3 commuter railroads (M-N, SLE, MBTA), one long distance carrier (Amtrak), Providence & Worcester and CSX for freight, plus 4 States and the Federal Gov’t doing what used to take only one RR to accomplish.

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