COMPANIES SCOFF AT RAIL DEAL FEARS.

Byline: Joe Ruff Associated Press 

It was vilified as the most anti-competitive rail merger in the nation's history.

But analysts and executives say plenty of competition will follow the Sept. 12 combination of Union Pacific and Southern Pacific. The merged railroad - the country's largest - will go head-to-head against giant Burlington Northern-Santa Fe.

``From Day One those two will fight to gain market share at the other's expense,'' said Carole Neely, a railroad analyst with Brown Brothers Harriman in New York.

Burlington Northern and Union Pacific both will have more than 30,000 miles of track spider-webbing out from Chicago and covering most of the West. With the merger, the railroads will control 90 percent of freight traffic west of the Mississippi River.

``They will be an intense competitor in nearly every quarter,'' Richard Davidson, president of UP railroad parent Union Pacific Corp., said of Burlington Northern.

Other railroads compete for some of the billions of dollars spent each year in the West on hauling grain, coal and paper products. But Canadian Pacific Rail and Kansas City Southern Railway - with freight revenues closer to $500 million - are dwarfed by the Big Two's billions.

That kind of market control threatened Union Pacific's proposed merger. Shipping costs would go up and smaller railroads would get squeezed out, argued some shippers, labor unions, smaller railroads and the U.S. departments of Justice, Transportation and Agriculture. Assistant U.S. Attorney General Anne Bingaman, who leads antitrust investigation, called the deal ``the most anti-competitive rail merger in our history.''

An organization of shippers remained concerned, particularly about lines between Kansas City and California and Houston to the Midwest.

``We are concerned that there be real competition in those corridors, not just lip service, or it will be detrimental to the U.S. economy,'' said Robert A. Voltmann, director of policy for the National Industrial Transportation League.

But UP argued that BN was too big to compete against without the merger, and to sweeten the deal offered to share 3,900 miles of track with BN and allow the Fort Worth, Texas-based company to purchase 335 miles of track.

The three-member Surface Transportation Board unanimously approved the $5.4 billion deal July 3, and analysts believe little can stand in the way of the two railroads becoming one.

``The Surface Transportation Board spent a fair amount of time negating the opposing testimony,'' analyst Neely said. ``A large part of the criticism was not supported by any kind of substantial evidence.''

Burlington Northern merged with Santa Fe railroad last year, creating a company with $8.1 billion in operating revenue and 31,000 miles of track in 27 states and two Canadian provinces. Union Pacific was left behind, with $6.3 billion in revenue and 22,600 miles of track.

UP's merger with Southern Pacific will create a company with $9.5 billion in revenue and 36,000 miles of track in 25 states, Canada and Mexico.

The Surface Transportation Board set up 35 conditions to the merger, including trackage rights for Burlington Northern and other railroads and a five-year oversight period to guarantee competition.

The Justice Department will study the board's written decision Aug. 12 and decide whether to battle the merger in federal court, said spokesman Bill Brooks.

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Photo

Photo: Union Pacific dispatcher John Hess communicates with a train engineer somewhere in Wyoming from the sprawling company's central dispatch center in Omaha, Neb.

Associated Press