Railroads: Return Engagement

Switching from tirades to togetherness with all the abruptness of young lovers making up a quarrel, the Pennsylvania Railroad, biggest in the nation, and the third-ranking New York Central* last week said that they had decided to ask the Interstate Commerce Commission for permission to merge. If the deal goes through, it will be among the largest mergers in history. The resulting giant would tower far above all other U.S. railroads in assets ($4.2 billion), trackage (20,372 miles from Boston to St. Louis) —and debts ($1.3 billion).

The merger announcement obliged Central President Alfred E. Perlman to swallow a large mouthful of crow and offered Pennsy Chairman James M. Symes (pronounced Sims) a rare kind of satisfaction. The two roads first began to talk merger in 1957, but two years later, just as they were about to settle on terms, Perlman coldly called the whole thing off. Said he: “Before we marry the girl, we want to make sure no other heiress is around that might fall into our lap.”

The Unwelcome Suitor. The Central’s lap, however, proved to have scant attraction for the other heiresses. Baltimore & Ohio Railroad stockholders flatly rejected Central overtures in favor of merger talks with the more profitable Chesapeake & Ohio Railway. The Central was also rebuffed when it tried to elbow into the projected merger of the Norfolk & Western Railway and the New York, Chicago & St. Louis (Nickel Plate) Railroad. And since the Pennsylvania owns 32.6% of the Norfolk & Western’s voting stock, Perlman began to fear that the girl he had rejected might join the N. & W.-Nickel Plate combine, leaving the Central to lead an impoverished bachelor existence.

The turning point for Perlman and the Central apparently came when John and Clint Murchison (TIME cover, June 16) took over Alleghany Corp., which controls the Central. As late as last September 20 Perlman was still proudly refusing Pennsy offers to share a roadbed with the Central. But between the mounting financial difficulties and the persuasion of John Murchison, a strong believer that mergers offer the Eastern railroads their best hope of profitability, Perlman finally had little choice but to accede to a shotgun marriage. At a casual glance, the proposed wedding might look like a pooling of weaknesses; the Central lost $25 million in the first nine months of this year and the Pennsy $13 million. But the two roads estimated that by eliminating duplicate equipment and facilities, they can save $100 million a year in operating costs.

Time For Self-Help. In Washington the betting is that the ICC will be favorably inclined toward the merger. Whether Justice Department trustbusters will agree is an open question, but given continuing truck competition and the fact that two other giant Eastern rail networks are in prospect, few railroadmen can see how a Pennsy-Central merger would create a danger of monopoly. Said one Washington railroad expert: “The Northeastern railroads are on the skids. If the Government can’t or won’t give them any relief, then at least they should be allowed to do something for themselves.”

* No. 2 U.S. railroad, with assets of $2.2 billion: Southern Pacific.