Justice Dept. Endorses Sale of Southern Pacific

WASHINGTON â€”  The Justice Department gave its endorsement Friday to the $1.8-billion sale of the Southern Pacific railroad to Rio Grande Industries, declaring that the new combination would be a strong competitor in the railroad market.

The final power over the sale lies with the Interstate Commerce Commission, which will make its ruling in August. However, approval by the Justice Department’s antitrust division removes a major potential obstacle to the deal.

Kansas City Southern, another prospective buyer for Southern Pacific, continues to oppose the deal with Rio Grande.

Santa Fe and Southern Pacific have been operated as competing lines since the parent firms merged five years ago. The ICC ruled last year against the merger and ordered the unified parent firm--Santa Fe Southern Pacific--to sell one of the big rail lines, either the Southern Pacific or the Atchison, Topeka & Santa Fe.

The selected buyer was Rio Grande Industries Inc., which operates the Denver & Rio Grande Western Railroad. The transaction would include $1.02 billion in cash and the assumption of $780 million in Southern Pacific debt.

Fifth-Largest Railroad

The Justice Department said Friday that the sale to Rio Grande would “solve the problems that would have been created by the Santa Fe-Southern Pacific merger.� The divested firm, Southern Pacific, “will be a viable competitor,� the department said.

The marriage of Southern Pacific and the Denver & Rio Grande is a “merger of two carriers that serve no competing routes,� the Justice Department said. “At the three common points served by both carriers, competition would not be significantly lessened,� according to the department.

“There appears to be a sufficient number of rail alternatives for shippers,� the department said.

The combination would create the nation’s fifth-largest railroad. Southern Pacific has 11,699 miles of track in the West and Southwest, while the Denver & Rio Grande operates 2,211 miles of track in Utah, Colorado, Kansas and Missouri.

Southern Pacific follows a route known as the central corridor, with tracks between Ogden, Utah, and the West Coast. It also has lines running to the Gulf port cities in Texas and Louisiana, and service to Kansas City and St. Louis. The Denver & Rio Grande has service from Ogden, Salt Lake City and Provo, Utah, to Denver, Colorado Springs and Pueblo, Colo., eastward into Missouri and Kansas.

On the positive competitive side, the merged carrier would create a healthy alternative to Union Pacific in the central route running from the West Coast to the Midwest, the Justice Department said.

Approval Recommended

Southern Pacific Transportation, based in San Francisco, includes the railroad, a trucking company and extensive real estate holdings. The parent, Santa Fe Southern Pacific, is based in Chicago.

The Justice Department filed its opinion Friday with the ICC, recommending approval of the deal with the Denver & Rio Grande because it meets the antitrust competitive standards and because the transaction is preferred by the Southern Pacific. The ICC “should not attempt to resolve the difficult question of whether another proposal would be better,� the department said.