How do Mergers Work?

[RRManiac]

Hey guys.

I suppose this is more related to the management/ownership of the railroad than to the actual operating, but could someone please explain how mergers work and perhaps provide an example of a merger document?

[P5se Camelback]

Having had my employment directly affected three times by so-called "Mergers" that were, in actuality, Hostile Takeovers, I'm first going to say that your question is primarily more of a "business" question than simply a railroad one. And a "merger document" is without question a legal document that would give the recent "Stimulous Bill" that got rammed through Congress without being read a real run for the money! The last one I saw was a soft-cover book that was almost three inches thick!

My best advice is that if you want information on mergers, start HERE.

If that doesn't satisfy your curiosity and you feel you need more insight, try THIS.

[Ralph]

Looks like we may have hit a sore spot for biL. I sympathize. For a readable look at a railroad merger that went poorly from the planning stages to its eventual failure you might want to check out "The Wreck of the Penn Central" by Joseph R. Daughen and Peter Binzen. It describes the behind the scenes thinking and maneuvering involved in bringing two formerly competing roads together.

Ralph

[P5se Camelback]

Looks like we may have hit a sore spot for biL. I sympathize. For a readable look at a railroad merger that went poorly from the planning stages to its eventual failure you might want to check out "The Wreck of the Penn Central" by Joseph R. Daughen and Peter Binzen. It describes the behind the scenes thinking and maneuvering involved in bringing two formerly competing roads together. Ralph

Sorry! But you did hit that nail right on the head, Ralph! Three times in a row ... and the result was a career that essentially would never recover from the years "wasted" at the "buyee" of a "merger" (where those who worked for the "buyer" got raises and increased responsibility and those who worked for the "buyee" lost their jobs - to me, that's the textbook result of a hostile takeover!) Yes, Ralph, a very sore spot, still, all these years later!

But the question was very much a business kind of question. However, I was not even aware that there was a book like the one you recommended and I may just have to pay a visit to our local library (such that it is) and see if they have a copy that I might read ... it would be interesting to know what the thinking was that would end with the two giants, who waged battle against each other for decades, joining together as one business entity!

[tomustang]

In the meantime Bil, you can read the PC successors book <!-- m --><a class="postlink" href="http://www.multimodalways.org/docs/railroads/companies/CR/CR%20Crane%20CR%20History%205-4-1988.pdf">http://www.multimodalways.org/docs/rail ... 4-1988.pdf</a><!-- m -->

[NJ Devils Fan]

I guess if you were to look at a "plus" side of a (recent) merger (railroad, that is), it would be that transit times of freight cars has reduced. Cars move quicker now than they did before.

I can remember customers telling us that "we would like to ship it by rail, but, we can't wait 3 weeks for the car to arrive". After the CR - NS - CSX meger, customers here in the Northeast were now receiving cars in "days" not "weeks". Railcars were not "tied up" in numerous yards awaiting interchange. Route and train structures changed to allow trains to "run through" instead of terminate. When a car arrived in a yard, it sometimes sat for days. Now these cars are placed in "final terminal" trains, not "forwarding yard" trains.

That makes a HUGE difference - to the customer. Besides, the costs comes down as well because the number of railroads that "handle" that car is decreased. It used to be that as many as 5 or 6 different railroads handled 1 car from order point to destination. Now, in some cases, only 1 or 2 railroads handle the car from point A to point B. And shortlines add to the successful business end of this too. Because class 1's "spinoff" branches, after mergers, that are hard for them to "make profitable". Shortlines "eat these up" because this is their "bread and butter".

Furthermore, rail cars are returned to service too. After a rail car is emptied at a customer location, it's returned to the original owner faster. So the "turn around" time on a rail car is faster.

In the end, it's all about making the rail customer happy. A happy customer orders more product by rail. Without the customer, there is no railroad.

In my opinion, the CR split up was a "good" merger, in terms of customer satisfaction, here in the northeast.

[Puddlejumper]

Yes, Conrail was definitely a success story. The Penn Central... well, not so much. 2 more good books are THE MEN WHO LOVED TRAINS by Rush Loving, Jr. which tells about the PC failure and CR being formed, and NO WAY TO RUN A RAILROAD by Stephen Salsbury which is about the PC fiasco.

For the OP, my favorite RR is the Mighty Pennsy. From it's inception in 1846 the PRR added mileage to it's vast network, not only by building but also by buying, leasing, or merging smaller lines. I think most of the acquisitions were just that, acquisitions. Done by buying 51% of a company's stock, the PRR would then "control" the road. At times the PRR controlled the Wabash, N&W, Reading, Lehigh Valley, Long Island, etc. Not to mention the thousands of railroads that you've never heard of, since the PRR controlled them, and eventually merged them into the PRR's corporate structure. Some of these roads have been gone for 150 years! The Northern Central, Baltimore and Potomac, Union RR of Baltimore, Philadelphia Terminal RR, Philadelphia Wilmington and Baltimore, Pittsburgh Ft. Wayne and Chicago, The Vandalia Line, etc. all disappeared in that manner.

I know that I prolly didn't answer any questions but I would like to see more on this topic.

[dave1905]

Hey guys.

I suppose this is more related to the management/ownership of the railroad than to the actual operating, but could someone please explain how mergers work and perhaps provide an example of a merger document?

One company decides that they would make a good fit with another company. The two companies propose to the boards of directors that the companies be combined and work out an arrangement of how the stock of the companies with be distributed, the name of the new company, the organizational structure, etc. The boards of directors, shareholders agree. The companies apply to the ICC/STB. Hearings are held. The ICC/STB give permission with whatever stimpulations. The companies agree to the stipulations and they merge. "Merger documents" can run into the thousands of pages of legal findings etc.

There is no one set pattern of how a merger is done, every one is unique and has its own quirks.

[Russ Bellinis]

Don't forget that sometimes two companies decide to merge, submit paper work to the ICC (now DOT), and figure they are in and even repaint some of the equipment to reflect the merger, then the ICC turns them down. Remember the SPSF, or as it came to be known the "Shouldn't Paint so Fast?"