Norfolk Southern Corporation and Norfolk Southern Railway CompanyControlConrail Inc. and Consolidated Rail Corporation

DEPARTMENT OF TRANSPORTATION

Surface Transportation Board

[STB Finance Docket No. 33286]

Norfolk Southern Corporation and Norfolk Southern Railway

Company--Control--Conrail Inc. and Consolidated Rail Corporation

AGENCY: Surface Transportation Board, DOT.

ACTION: Decision No. 1; Notice of prefiling notification and request

for comments.

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SUMMARY: Pursuant to 49 CFR 1180.4(b), Norfolk Southern Corporation

(NSC) and Norfolk Southern Railway Company (NSR) 1 have notified

the Surface Transportation Board (Board) of their intent to file an

application seeking authority under 49 U.S.C. 11323-25 for: (1) The

acquisition of control of Conrail Inc. (CRI) and Consolidated Rail

Corporation (CRC) 2 by NSC; and (2) the resulting common control

by NSC of Conrail and its subsidiaries, on the one hand, and NSR and

its subsidiaries, on the other. The Board finds this to be a major

transaction as defined in 49 CFR part 1180. The Board invites comments

from interested persons on a proposed procedural schedule.

\1\ NSC and NSR are referred to collectively as applicants.

\2\ CRI and CRC are referred to collectively as Conrail.

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DATES: Written comments on the proposed schedule must be filed with the

Board no later than December 13, 1996. Applicants' reply is due by

December 23, 1996.

ADDRESSES: An original and 25 copies of all documents must refer to STB

Finance Docket No. 33286 and must be sent to the Office of the

Secretary, Case Control Branch, ATTN: STB Finance Docket No. 33286,

Surface Transportation Board, 1201 Constitution Avenue, N.W.,

Washington, DC 20423.3

[[Page 60318]]

In addition, one copy of all documents in this proceeding must be sent

to the applicants' representative: Richard A. Allen, Esq., Zuckert,

Scoutt & Rasenberger, L.L.P., 888 Seventeenth Street, N.W., Washington,

DC 20006-3939.

\3\ In addition to submitting an original and 25 copies of all

documents filed with the Board, the parties are encouraged to submit

all pleadings and attachments as computer data contained on a 3.5-

inch floppy diskette which is formatted for WordPerfect 5.1 (or

formatted so that it can be converted into WordPerfect 5.1) and is

clearly labeled with the identification acronym and number of the

pleading contained on the diskette [49 CFR 1180.4(2)]. The computer

data contained on the computer diskettes submitted will be subject

to the protective order that will be entered in a subsequent

decision, and is for the exclusive use of Board employees reviewing

substantive matters in this proceeding. The flexibility provided by

such computer file data will facilitate expedited review by the

Board and its staff.

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FOR FURTHER INFORMATION CONTACT: Julia M. Farr, (202) 927-5352. [TDD

for the hearing impaired: (202) 927-5721.]

SUPPLEMENTARY INFORMATION: In the notice of intent filed November 6,

1996, applicants state that on October 23, 1996, NSC announced its

intention to commence a public tender offer for equity securities of

CRI. On October 24, 1996, NSC and its wholly owned subsidiary, Atlantic

Acquisition Corporation (Acquisition), commenced the tender offer

pursuant to an Offer to Purchase dated October 24, 1996. NSC and

Acquisition have offered to purchase shares of common stock of CRI,

subject to the conditions specified in the Offer to Purchase. Upon

purchase of CRI shares by NSC, Acquisition, or their affiliates, such

purchased shares will be deposited in an independent voting trust

pending approval by the Board of the acquisition of control by NSC of

Conrail.4 NSC is seeking to negotiate with CRI a definitive merger

agreement pursuant to which CRI would, as soon as practicable following

consummation of the Offer, consummate a merger or similar business

combination with Acquisition or another direct or indirect subsidiary

of NSC (the Merger). To avoid the acquisition of control by NSC of

Conrail prior to approval by the Board, NSC intends to deposit all

issued and outstanding common stock of Acquisition (which may become

stock of the surviving corporation on consummation of the Merger) owned

by NSC into the voting trust at or immediately prior to the Merger.

Upon Board approval of the acquisition by NSC of control of Conrail,

NSC will acquire control of Conrail through stock ownership of the

voting trust.

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\4\ Applicants filed a copy of a proposed voting trust agreement

(VTA) on October 25, 1996, to be entered into by and between NS,

Acquiror, and a Bank (to be named as Trustee) for use in a possible

future NS acquisition of Conrail. An informal staff opinion letter

was issued on November 1, 1996. On November 6, 1996, applicants

submitted an alternative VTA proposed to be entered into by and

between NS, Acquiror, and a Bank (to be named as Trustee), which

would revise para. 4 of the VTA to reflect that, if a merger between

Acquiror and Conrail Inc. takes place prior to Board approval of the

control application and the common stock of the merged entity is

deposited into the voting trust in accordance with VTA para. 3, the

Trustee will have the authority from the outset to vote all shares

of the Trust Stock on all matters except the enumerated matters in

para. 4 ``in accordance with its best judgment concerning the

interests of the Company.'' An informal opinion letter was issued on

November 18, 1996.

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Applicants state that they will use the year 1995 for purposes of

their impact analysis to be filed in the application, and that they

anticipate filing their application on or before May 1, 1997.

The Board finds that this is a major transaction, as defined at 49

CFR 1180.2(a), as it is a control transaction involving two or more

Class I railroads. The application must conform to the regulations set

forth at 49 CFR part 1180 and must contain all information required

therein for major transactions, except as modified by any advance

waiver.5 The carriers are also required to submit maps with

overlays that show the existing routes of both carriers and their

competitors.

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\5\ The ICC Termination Act of 1995, Pub. L. No. 104-88, 109

Stat. 803, requires that we consider the effect of the proposed

transaction ``on competition among rail carriers in the affected

region or in the national rail system.'' 49 U.S.C. 11324(b)(5).

Applicants are reminded to include analysis on both of these

criteria in their competitive analyses.

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By petition filed November 8, 1996 (NSC-3), applicants requested a

protective order to protect confidential, highly confidential, and

proprietary information, including contract terms, shipper-specific

traffic data, and other traffic data to be submitted in connection with

the control application. Applicants' request for protective order will

be addressed in a separate decision.

Also on November 8, 1996, applicants filed a petition to establish

a proposed procedural schedule (NSC-2). Applicants' proposed procedural

schedule is as follows:

Applicants' Proposed Procedural Schedule

F--Primary application and related applications filed.

F + 30--Board notice of acceptance of primary application and related

applications published in the Federal Register.

F + 45--Notification of intent to participate in proceeding due.

F + 60--Description of anticipated inconsistent and responsive

applications due; petitions for waiver or clarification due with

respect to such applications.

F + 120--Inconsistent and responsive applications due. All comments,

protests, requests for conditions, and any other opposition evidence

and argument due. Comments by U.S. Department of Justice (DOJ) and U.S.

Department of Transportation (DOT) due.

F + 135--Notice of acceptance (if required) of inconsistent and

responsive applications published in the Federal Register.

F + 150--Response to inconsistent and responsive applications due.

Response to comments, protests, requested conditions, and other

opposition due. Rebuttal in support of primary application and related

applications due.

F + 165--Rebuttal in support of inconsistent and responsive

applications due.

F + 185--Briefs due, all parties (not to exceed 50 pages).

F + 215--Oral argument (at Board's discretion).

F + 217--Voting conference.

F + 255--Date of service of final decision.

Under applicants' proposal, immediately upon each evidentiary

filing, the filing party shall place all documents relevant to the

filing (other than documents that are privileged or otherwise protected

from discovery) in a depository open to all parties, and shall make its

witnesses available for discovery depositions. Access to documents

subject to the protective order shall be appropriately restricted.

Parties seeking discovery depositions may proceed by agreement.

Relevant excerpts of transcripts will be received in lieu of cross-

examination, unless cross-examination is needed to resolve material

issues of disputed fact. Discovery on responsive and inconsistent

applications will begin immediately upon their filing. The

Administrative Law Judge assigned to this proceeding will have the

authority initially to resolve any discovery disputes.6

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\6\ The process of assigning an ALJ to this proceeding is

underway, and we will leave all discovery matters, including the

adoption of any guidelines governing discovery initially, to the

discretion of the ALJ. A decision naming that judge will be issued

as soon as possible.

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The proposed schedule is identical to the one requested by the

applicants in STB Finance Docket No. 33220, CSX Corporation and CSX

Transportation, Inc.--Control and Merger--Conrail Inc. and Consolidated

Rail Corporation (CSX/CR), filed October 18, 1996 (CSX/CR-3), and is

substantially similar to that adopted in Union Pacific Corporation,

Union Pacific Railroad Company and Missouri Pacific Railroad Company--

Control and Merger--Southern Pacific Rail Corporation, Southern Pacific

Transportation Company, St. Louis Southwestern Railway Company, SPCSL

Corp. and The Denver and Rio Grande Western Railway Company (UP/SP),

Finance

[[Page 60319]]

Docket No. 32760 (see Decision No. 6, ICC served Oct. 19, 1995; and

Decision No. 9, ICC served Dec. 27, 1995).

Applicants' proposal is one of the first major consolidation

transactions presented to the Board under the ICC Termination Act of

1995, Pub. L. No. 104-88, 109 Stat. 803 (ICCTA), enacted December 29,

1995, and effective January 1, 1996. The Board is seeking comments from

the public on applicants' proposed procedural schedule, as modified by

us below to adhere more closely to the provisions of ICCTA. In ICCTA,

Congress provided pursuant to 49 U.S.C. 11325(b) [emphasis added]:

(b) If the application involves the merger or control of two or

more Class I railroads, as defined by the Board, the following

conditions apply:

(1) Written comments about an application may be filed with the

Board within 45 days after notice of the application is published [F +

75 days] under subsection (a) 7 of this section. Copies of such

comments shall be served on the Attorney General and the Secretary of

Transportation, who may decide to intervene as a party to the

proceeding. That decision must be made by the 15th day after the date

of receipt of the written comments, and if the decision is to

intervene, preliminary comments about the application must be sent to

the Board by the end of the 15th day after the date of receipt of the

written comments [F + 90 days].

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\7\ Under 49 U.S.C. 11325(a), ``[t]he Board shall publish

notice of the application under section 11324 in the Federal

Register by the end of the 30th day after the application is filed

with the Board * * *.''

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(2) The Board shall require that applications inconsistent with an

application, notice of which was published under subsection (a) of this

section, and applications for inclusion in the transaction, be filed

with it by the 90th day after publication of notice [F + 120 days]

under that subsection.

(3) The Board must conclude evidentiary proceedings by the end of 1

year after the date of publication of notice under subsection (a) of

this section. The Board must issue a final decision by the 90th day

after the date on which it concludes the evidentiary proceedings.

Specifically, we propose to modify applicants' proposed schedule to

require parties intending to file comments, protests, requests for

conditions, and any other opposition evidence and argument to file

their submissions 75 days from the date the application is filed [F +

75] as provided for under 49 U.S.C. 11325(b)(1), with comments from the

U.S. Department of Justice (DOJ) and the U.S. Department of

Transportation (DOT) due 90 days from the date the application is filed

[F + 90 days] as provided for under 49 U.S.C. 11325(b)(1). If these due

dates were to be established for comments in this proceeding, responses

to comments, protests, requested conditions, and other opposition, and

also rebuttal in support of the primary application and related

applications would be due 30 days after the due date (i.e., on day F +

105 for responses to commenters and parties other than DOJ and DOT; and

on day F + 120 for responses to DOJ and DOT). We propose to keep

inconsistent and responsive applications due 120 days from the date the

application is filed [F + 120 days] as provided for under 49 U.S.C.

11325(b)(2). Because there has not been a major merger in the East

since the early 1980s, given our merger experience, we believe it would

be prudent for us to factor in some additional time to accommodate

possible unique issues that may arise. We propose extending applicants'

proposed procedural schedule by 45 days allocated as follows: (1)

adding 5 days to applicants' proposed period of time for parties to

prepare their briefs, so that briefs would be due on F + 190 days; (2)

adding 15 days to applicants' proposed period of time for parties to

prepare for oral argument, so that oral argument would occur on F + 235

days; (3) adding 3 days to applicants' proposed 2-day interval between

the oral argument and the voting conference, so that a voting

conference would occur on F + 240 days; and (4) adding 22 days to

applicants' proposed period of time after the voting conference for the

service of the Board's final decision on F + 300 days. In addition, we

propose requiring applicants to file an environmental report, including

all supporting documents, no later than 30 days prior to the filing of

the primary application.8

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\8\ While applicants need not file their actual operating plan

due at the time of the filing of their application, the supporting

documents must be completely consistent with their operating plan

and contain sufficient information to allow immediate initiation of

the environmental review process.

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Proposed Procedural Schedule as Modified by the Board 9

F---30--Environmental report, including all supporting documents due.

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\9\ Emphasis added to indicate the proposed changes made by the

Board.

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F--Primary application and related applications filed.

F + 30--Board notice of acceptance of primary application and related

applications published in the Federal Register.

F + 45--Notification of intent to participate in proceeding due.

F + 60--Description of anticipated inconsistent and responsive

applications due; petitions for waiver or clarification due with

respect to such applications.

F + 75--All comments, protests, requests for conditions, and any other

opposition evidence and argument due.

F + 90--Comments by U.S. Department of Justice (DOJ) and U.S.

Department of Transportation (DOT) due.

F + 105--Responses to comments, protests, requested conditions, and

other opposition due. Rebuttal in support of primary application and

related applications due in response to filings on day F + 75.

F + 120--Inconsistent and responsive applications due. Rebuttal in

support of primary application and related applications due in response

to filings of DOJ and DOT on day F + 90.

F + 135--Notice of acceptance (if required) of inconsistent and

responsive applications published in the Federal Register.

F + 150--Response to inconsistent and responsive applications due.

F + 165--Rebuttal in support of inconsistent and responsive

applications due.

F + 190--Briefs due, all parties (not to exceed 50 pages).

F + 235--Oral argument (close of record).

F + 240--Voting conference.

F + 300--Date of service of final decision.

Applicants are proposing that any applications for authority for,

or for exemption of, merger-related abandonments, and any supporting

verified statements, be filed with the primary application, and be

treated as related applications, with any opposition evidence,

comments, rebuttal and briefing on those applications to be submitted

in accordance with the same schedule as the primary application. We

agree that we should process any merger-related abandonment

applications in accordance with the overall merger procedural schedule,

rather than applying the procedures found at 49 U.S.C. 10903, which is

similar to our process we used in the UP/SP proceeding. See UP/SP

(Decision No. 9) (ICC served Dec. 27, 1995), slip op. at 9-10.

Therefore, we will grant applicants' request for waiver under 49 CFR

1152.24(e)(5) to permit modifications of the procedures and

[[Page 60320]]

timetables prescribed in 49 CFR 1152.25(d) (6) and (7) to be consistent

with the procedural schedule subsequently adopted in this proposed

merger proceeding.10

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\10\ Applicants indicate that they intend to file shortly a

petition for waiver or clarification of Railroad Consolidation

Procedures, and related relief. As in UP/SP, applicants should also

seek an exemption under 49 U.S.C. 10502 from any statutory

procedural requirements at 49 U.S.C. 10903 necessary to allow the

Board to process the merger-related abandonment applications under

the procedural schedule ultimately adopted. See UP/SP (Decision No.

3) (ICC served Sept. 5, 1995), slip op. at 7-10.

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We invite all interested persons to submit written comments on the

procedural schedule we are proposing here. Comments must be filed by

December 13, 1996. Applicants may reply by December 23, 1996.

This action will not significantly affect either the quality of the

human environment or the conservation of energy resources.

Decided: November 21, 1996.

By the Board, Chairman Morgan, Vice Chairman Simmons, and

Commissioner Owen.

Vernon A. Williams,

Secretary.

[FR Doc. 96-30290 Filed 11-26-96; 8:45 am]

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