SANTA FE-SP REVISITED

SANTA FE SOUTHERN PACIFIC CORP.'S announced attempt to solve competitive problems that forced the Interstate Commerce Commission to reject the merger of its rail units is the only way it can extricate itself from a sticky situation of its own making.

The company is talking with at least two competitors -- the Union Pacific and the Denver & Rio Grande rail systems - in an attempt to come up with agreements aimed at solving their objections to the transaction. There also are indications the carrier is considering selling off segments of its system to other carriers or new short lines in an attempt to solve the problems that created misgivings at the ICC.Santa Fe Southern Pacific is finally showing flexibility in this area. If they are successful and past history is any precedent, the ICC probably will finally approve the transaction. Many of the conditions the agency attaches to railroad mergers are little more than agreements that the railroads wishing to merge work out with competitors. These often are then adopted by the agency essentially intact.

Whether the company can complete the negotiations within the next few weeks and submit them to the commission is unclear. The price the Santa Fe-SP will pay undoubtedly will be higher than it would have if the deals were reached before the agency made its decision.

The commission's rejection of the merger leaves Santa Fe-SP with three options: to agree with competing carriers in an attempt to solve their concerns; to sell one or both of the railroads to competing carriers; or to offer them on the public market where it may have to compete with the government's holdings in a rejuvenated Conrail.

It appears that if the parties involved come up with a consensus on what should be done the government will probably approve the matter. If the agreements are acceptable to all we feel the ICC should consider them and approve them. The financial shakiness of both the Santa Fe and the Southern Pacific rail units justifies approval if the competitive problems that concerned the commission are met.

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