CSX, NS RALLY TROOPS FOR TAKEOVER WITH SLOGAN: SMOOTH INTEGRATION

CSX, NS RALLY TROOPS FOR TAKEOVER WITH SLOGAN: SMOOTH INTEGRATION

Like quartermasters preparing for a campaign, CSX Corp. and Norfolk Southern Corp. are marshaling people, equipment and technology in an effort to steer their companies away from the post-merger woes that have beset Western railroads.

The buyers of Conrail Inc., however, are pressing their troops to march fast.NS and CSX are readying themselves to split Conrail on Sept. 1, just nine days after the companies can take legal control, if all key steps, such as labor agreements and information technology, are in place.

Until now, public comments have stressed a go-slow approach to integrating Conrail as the companies gear up for an expected July 23 approval by the Surface Transportation Board and a subsequent 30-day waiting period before NS and CSX get their hands on Conrail's assets.

The Sept. 1 target date, which assumes regulatory approval by the board, surfaced during a Journal of Commerce interview in which Michael Ward, a CSX executive vice president, and NS Vice Presidents Nancy Fleischman and James McClellan, sketched a broad strategy for absorbing their $10.2 billion acquisition.

Smooth integration is a key concern of shippers and federal agencies. The U.S. Department of Transportation said last week that the Conrail sale should proceed only if it included conditions to ensure safety and service reliability.

The actual date for dividing Conrail - NS will get 58 percent and the rest will go to CSX - may change a bit, because the parties say they want to be confident that other major issues have been addressed, such as safety and training. Conditions imposed by the board also could be a factor.

Whenever it happens, the breakup will leave the buyers in control of two Eastern rail networks, with revenue above $6 billion each and tracks that penetrate every major metropolitan area, port and manufacturing center.

NS and CSX officials continue to stress differences between their approach and Union Pacific Corp.'s experience after acquiring Southern Pacific Rail Corp. in 1996.

That deal was supposed to generate $820 million in additional profit. Instead, UP posted a $152 million fourth-quarter loss and admitted it would report another loss next month.

''UP's failures changed the playing field for everybody,'' Mr. McClellan said, noting that in 1996 ''Wall Street was concerned with how fast they (UP) would do their merger. Now, they have switched to concern about how not to screw it (Conrail) up.''

Concerns about integration are steering Conrail's buyers to showcase their planning prowess.

Mr. Ward cited CSX's effort to assure adequate locomotive power - a problem in Western mergers - by acquiring 289 new units and rebuilding up to 120 engines that normally would have been retired by the end of 1999.

NS stresses training and communication.

''Training is the key to safe operations and systems working,'' Ms. Fleischman said. ''If we haven't got trained people, having all the wonderful systems in place won't help us.''

NS and CSX have work teams studying each task in the integration process, such as information technology, with counterparts at Conrail.

That way, Ms. Fleischman said, ''there's a reality check built into the process.''

The companies also are paying Conrail to hire 250 to 300 employees in case they are needed. Unexpected retirement of SP employees was cited by UP as a reason for its problems. CSX is paying contractors to build a parallel version of the Conrail computer system to test compatibility with the CSX system. Both executives stressed that the individual companies' integration will proceed gradually after the split date.

For example, CSX will leave train dispatching on its new Conrail lines in the hands of that company's employees until implementation of the acquisition is complete.

The issue of the actual ''split date'' remains somewhat fuzzy. Most observers believe NS and CSX will have to start the Conrail integration process at the same time.

When asked about a specific split date, Ms. Fleischman said, ''We want to do it as quickly as we possibly can.''

Mr. Ward said, ''There are certain critical pieces that have to be in place - labor agreements, information technology, training and safety.''

Mr. Ward also said that it was unlikely that training would be completed on Sept. 1, since Aug. 23 would be the earliest date when CSX could get onto the Conrail property.

''We want to be all dressed up and ready to go to the dance,'' Mr. Ward said. ''The question is whether the limo will show up.''

Ms. Fleischman labeled Sept. 1 as ''theoretical and hypothetical. It's a target.''

There also is apparent sensitivity to comparisons with recent mergers such as the UP-SP deal and Burlington Northern and Santa Fe Railway, which have hit bumps in the road during implementation.

''Why is there an expectation that we will screw it up?'' Ms. Fleischman said. ''NS didn't screw it up when it was created. CSX didn't screw up when it was created. Conrail wasn't screwed up when it was started.''

''It's hard to say how you can guarantee there won't be a problem,'' Mr. Ward said. ''We are trying to do everything we can to try to minimize change in the way people do the work. When we get to the split date, there will be as few changes as possible.''