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Union Pacific Asks Court to Force an Auction of Santa Fe

January 18, 1995

CHICAGO (AP) _ Union Pacific Corp. attacked Santa Fe Pacific Corp. on another front Wednesday by asking a judge to force an auction of the smaller railroad.

The lawsuit also seeks to invalidate Santa Fe’s ``poison pill″ takeover defense and its agreement to pay Burlington Northern Inc. a $60 million break-up fee if it backs out of their proposed merger.

Union Pacific filed the amended lawsuit in Delaware Chancery Court one day after boosting its hostile takeover bid for Santa Fe to $18.50 a share from $17.50 a share. Union Pacific values the cash offer at $3.6 billion. The litigation is pending in Delaware because the companies are incorporated there.

Lawyers for Santa Fe, which has agreed to be acquired by Burlington Northern for $3.8 billion, believe the lawsuit is ``without merit,″ spokeswoman Catherine Westphal said. Earlier in the day, Santa Fe Chairman Robert D. Krebs said the company’s board of directors would review Union Pacific’s new bid.

The legal maneuver by Union Pacific, the nation’s largest railroad by revenue, adds a new twist to the battle for domination of western U.S. rail service. The prize is Santa Fe’s Chicago-Los Angeles line, the industry’s most direct route between the two transportation centers.

In an amendment to a lawsuit originally filed Oct. 6, Union Pacific asserted Santa Fe and its board of directors violated their obligation to seek the best deal for Santa Fe shareholders by entering into a merger agreement with Burlington Northern without fairly considering competing bids.

It asked the court to ``compel Santa Fe to adopt a fair and equal process for considering competing Union Pacific and Burlington Northern bids.″

Union Pacific, based in Bethlehem, Pa., contends its all-cash bid is superior to Burlington’s higher offer of $20 a share in cash and stock because Union Pacific would pay Santa Fe shareholders up front. Completion of the Burlington Northern deal depends on Interstate Commerce Commission approval, a process that could take more than two years.

Union Pacific plans to buy Santa Fe and place it in a trust that would operate it while the ICC decides whether a merger of their rail lines would reduce competition.

Shareholders of Burlington Northern, the second-largest railroad operator, and No. 7 Santa Fe are scheduled to vote on their companies’ merger proposal Feb. 7. Burlington is based in Fort Worth, Texas. Santa Fe is based in the Chicago suburb of Schaumburg.

Also on Wednesday, Santa Fe reported a 30 percent decline in fourth-quarter earnings to $46.3 million, or 24 cents per share, from $67 million, or 36 cents per share, a year earlier.

The 1994 fourth-quarter results were depressed by $11.6 million in non-recurring merger-related costs. The 1993 fourth-quarter results included $13.9 million in income from discontinued operations. Excluding those items, net income would have risen 9 percent to $57.9 million, or 30 cents per share, from $53.1 million, or 28 cents per share, Santa Fe said.

Fourth-quarter revenues rose 13 percent to $711 million from $631.1 million, Santa Fe said.

For the full year, Santa Fe’s net income fell 34 percent to $222.5 million, or $1.17 per share, from $338.8 million, or $1.81 per share.

Excluding the previously mentioned items and other one-time gains and charges, 1994 earnings from continuing operations would have risen 58 percent to $181.4 million, or 95 cents per share, from $114.5 million, or 61 cents per share, in 1993.

Full-year revenues rose 11 percent to $2.68 billion from $2.41 billion.

Santa Fe’s stock rose 37 1/2 cents Wednesday to $18.25 a share; Union Pacific fell 37 1/2 cents to $48.75; Burlington Northern rose 12 1/2 cents to $52.75.

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