Third-quarter rail earnings reports released over the past 10 days have given a graphic view of the wrenching power of the rail merger process at work, from initial announcement to the consolidation of people and activities afterward.

For some companies, like Union Pacific in its Omaha headquarters, and Burlington Northern Santa Fe in Fort Worth and Schaumburg, Ill., the third quarter was the best of times.For Southern Pacific Lines in Denver and San Francisco, the third quarter was, if not the worst of times, something quite different from its recent modest success in the financial arena.

BNSF posted spectacular earnings that drove the company's stock up nearly 6 points in one day. The operating ratio (expense divided by revenue) improved by 6 points. Operating income rose 55 percent. Expenses were held in check.

And that was even before the merger really got up a head of steam (or is that diesel?), since the consolidation was completed just nine days before the quarter ended.

Within three years after the BN-Santa Fe merger date, the operating ratio is expected to drop several more percentage points, and savings approaching $1 billion are expected.

For the 1,600 or so managers who will lose their jobs by the end of 1995, the merger may turn out to be the worst of times. Thousands of union workers may face the same uncertain future after labor agreements are revised to reflect the consolidation.


In Omaha, UP is further along in one merger - the Chicago & North Western consolidation - and still in the initial stages of its other deal - acquisition of Southern Pacific Lines.

UP found reasons for corporate optimism in the progress of both transactions.

Consolidation of C&NW has been faster than planned, with $50 million more of merger savings than originally anticipated.

The third-quarter financial results showed progress in boosting revenue by making better use of assets and pricing leverage. Though volume, compared with the two carriers' separate operations, was down slightly, overall revenue went up 4 percent.

The personal effect also is strong in the C&NW deal. More than 1,200 people already have lost their jobs, with more to follow.

UP also painted a favorable picture of shipper support for their merger with SP, claiming more than 1,000 customers would endorse the deal.

Perhaps the intense personal impact of mergers hurt Southern Pacific in the third quarter and caused a 49 percent drop in operating income, higher expenses and a slight decline in revenue.

Mergers and their aftermath can knock people off their feet, like an unexpected wave. Righting yourself after the shock can be harder than first imagined, especially if you have to manage a complex, hotly competitive business every day.

How people and companies react to these mergers is important to watch,

because what happened in public during the announcement of third-quarter results is just half of the merger story.


The prospect and likelihood of subsequent mergers clearly were watched as closely as the quarterly financial results.

At one company, frequently mentioned in merger rumors, the joke is that the company has programmed a "no comment" response - just use the F2 key, one official said with a tight grin.

The volatile environment has made chief executives sound very much like politicians and fortune tellers at the same time.

Norfolk Southern Chairman David Goode, whose company is linked to Consolidated Rail Corp. in merger rumors, had this to say about mergers:

"I don't have the answer. I don't have in my mind the certainty you (securities analysts) might like me to have about where the business is going. In the context of everything that is going on and all the speculation and all the possibilities, my answer to you is, no, I don't want to make any comments."

Asked later whether that no comment meant nothing was going on, or that something was occurring that he did not want to have to deny, Mr. Goode chose not to elaborate.

The NS chief was not alone in the open-ended answer category.

Rob Krebs, BNSF chief executive, answered the question this way:

"We have to take this one step at a time. I don't want to predict where the business is headed."

Mr. Krebs repeated his view that he expected a transcontinental merger during his railroad career, because such a move would improve service in line with the customers' demands.

He also said the company had two jobs. The first was to realize the potential of their merger.

"After that," he said, "we have to realize where the industry is headed and respond in an aggressive manner."

What does this mean for an industry where people's travel schedules, hotel preferences, ceremonial appearances and past fraternal associations are scoured for hints of future combinations?

That's a story for another time.