SALE OF D&H TO BE WHOLE OR IN PARTS?

SALE OF D&H TO BE WHOLE OR IN PARTS?

A final decision whether to sell the Delaware & Hudson Railway as a whole or in parts is expected within two weeks as the carrier enters the final chapter of its reorganization under the federal bankruptcy laws.

Offers to acquire all or part of the 1,600-mile carrier are to be submitted to Francis P. DiCello, the trustee overseeing the D&H's reorganization under the federal bankruptcy laws, by the close of business April 6.The court overseeing the D&H's reorganization has scheduled an April 11 hearing to decide whether the railroad should continue operating. That could clear the way for shutting down the railroad as early as April 15.

CP Rail, a unit of Canadian Pacific Ltd., withdrew its $35 million offer to acquire the D&H this week after it became obvious an agreement permitting it to operate over a 60-mile line between Harrisburg, Pa., and Hagerstown, Md., owned by Consolidated Rail Corp. was not in the offing.

Don't be surprised, however, if CP offers to acquire the D&H without the Conrail trackage rights. Another company, Delaware Otsego Corp., also is attempting to put together an offer to acquire the entire D&H system.

There are several reasons why CP may still want to acquire the D&H without the Conrail rights, Tim Murphy, a vice president with the Vienna, Va., consulting firm of Barber & Associates, told The Journal of Commerce.

They are all speculative, however, and there is no immediate payoff without the Harrisburg-to-Hagerstown trackage rights, he said.

The 1,600-mile D&H system, at the very least, will get CP into Northeast markets, Mr. Murphy said.

CP would obtain good connections to the West with CSX Transportation and Norfolk Southern Corp. at Buffalo.

It also would gain access to Philadelphia over trackage rights already owned by the D&H.

For example, CP could provide through service from Montreal to the New York-New Jersey metropolitan area through service arrangements with Conrail or one of the Delaware-Otsego Corp. carriers.

A D&H acquisition also would permit CP to reach agreements to acquire all or parts of other Northeastern rail systems should competitive circumstances warrant.

Purchasing the D&H, for example, may put CP in a position to acquire parts of Guilford Transportation Industries should that possibility arise, Mr. Murphy said.

CP also will continue to deal with Conrail on a day-to-day basis and, through the normal course of business relationships, an agreement covering the Harrisburg-Hagerstown trackage rights may result.

Another possibility would be for CP to negotiate agreements permitting the company to operate run-through trains over other rail systems, Mr. Murphy said.

There is no guarantee any of this will happen, Mr. Murphy said, but the possibilities would be foreclosed if CP does not attempt to acquire the D&H and the railroad is broken up.

Delaware Otsego Corp. also is attempting to put together a group of carriers to make an offer to acquire the entire D&H.

Delaware Otsego owns the New York, Susquehanna and Western Railway, which provided directed service over the D&H from 1988 until it was taken over by the railroad's trustee in late February.

Preliminary discussions have been held with Canadian Pacific, Canadian National, and state agencies to see if financing for an offer can be put together.

The other remaining option is to break the railroad up into segments and sell them to interested parties.

That could provide the best return to D&H creditors, since railroads broken up and sold in chunks often prove more valuable than the system as a whole.

Companies that have expressed interest in acquiring parts of the D&H include Conrail and Delaware Otsego.

Conrail probably is interested in acquiring the D&H's line between Albany, N.Y., and Montreal. It is the best route into Montreal from New York City and far more direct than the routing Conrail currently uses, one industry observer said.