Investor Group Extends $1.4 Billion Bid For Conrail
Jul. 01, 1986
WASHINGTON (AP) _ A group of investors headed by Morgan Stanley & Co. of New York is extending its offer for government-owned Conrail and urging Congress to unload the freight railroad while market conditions are ripe.
Morgan Stanley said Monday that the government should act swiftly to get the best return for the railroad, which is being sought by several groups of investors but which not all lawmakers are convinced should be sold.
''No one can know what the market will be six or nine months from now,'' Thomas Saunders, a Morgan Stanley managing director, said in a prepared statement.
''Although we continue to offer guaranteed minimum proceeds to the government, the way to obtain maximum proceeds, given current market conditions, is to agree on a public offering proposal before the 99th Congress adjourns'' prior to the November elections, he said.
The group's $1.4 billion bid, due to expire Monday, was extended until Oct. 15, he said.
The Morgan Stanley group's offer is an alternative to the Reagan administration's choice of Norfolk Southern Corp. to purchase 10-year-old Conrail. The group says it would underwrite the purchase of the railroad with cash up front. Within five years, a majority of the interest would be resold through public stock offerings.
There has been little movement on the proposed Conrail sale in Congress since Rep. John Dingell, D-Mich., the chairman of the House Energy and Commerce Committee, said May 1 that he could not support a Conrail-Norfolk Southern merger because it would be anti-competitive.
Instead, Dingell said he supported a public sale of Conrail, although he refrained from endorsing either Morgan Stanley or any other group's public offering bid.
Norfolk Southern, whose original $1.2 billion offer already has won Senate approval, announced May 9 that it would raise its bid to $1.9 billion, as suggested by Transportation Secretary Elizabeth Dole. But Dingell said the offer remained unacceptable.
Despite Dingell's opposition - which has effectively blocked Norfolk Southern's bid - Mrs. Dole has not budged from her position that the Virginia holding company provides the best hope for Conrail's future. She believes Conrail needs Norfolk Southern's ''deep pockets'' as protection against economic downturns.
''DOT continues to support Norfolk Southern. We've never done anything to the contrary,'' Wendy DeMocker, spokeswoman for the Federal Railroad Administration, which is part of DOT, said Monday.
But Saunders said the delay in Congress in acting on the sale has given time for Conrail to prove that can survive without another railroad's resources. ''Today, there is virtual consensus that Conrail is viable,'' he said.
Conrail reported $440 million in earnings in 1985 and reported a cash balance of $910 million. But Mrs. Dole said the railroad's cash flow increased only $64 million over the previous year and that it had listed 500 miles of lines for potential abandonment.
She said she wanted to prevent a recurrence of 1976, when Conrail was created by the government to preserve freight rail service in the Northeast after the collapse of the Penn Central and other rail lines. She first endorsed Norfolk Southern's offer in February 1985, two months before Morgan Stanley made its bid.