SCHEDULE 14A INFORMATION
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(4) Date Filed: October 13, 1994
STATEMENT OF JOHN F. DEPODESTA
My name is John F. DePodesta and I am currently
Of Counsel to the law firm of Pepper, Hamilton & Scheetz
in Washington, D.C., specializing in regulated industries
and corporate restructurings. I have represented
numerous rail carriers and public bodies in proceedings
before the Interstate Commerce Commission. Prior to
entering private law practice in 1979, I had served as
General Counsel for Consolidated Rail Corporation (1976-
1979) and General Counsel - Reorganization for the
Trustees of Penn Central Transportation Company (1971-
1976). I am a graduate of Harvard College and the
University of Pennsylvania Law School.
I have been asked by the Union Pacific Railroad
Company ("UP") to assess whether a proposed merger
between the UP and Santa Fe railroads could be favorably
considered by the Interstate Commerce Commission ("ICC"
or "Commission"). In this regard, I am aware of public
contentions made by Santa Fe that ICC approval of the
proposed merger of Burlington Northern and Santa Fe is
"likely" and that ICC approval of a proposed UP/Santa Fe
merger is "unlikely." In my judgment, such predictions
are ill-advised.
To inform the analysis, it is useful to
summarize the statutory and regulatory standards which
govern ICC consideration of rail merger proposals. Under
the basic statutory standard, the ICC is required to
approve a transaction if it is "consistent with the
public interest." 49 U.S.C. SECTION 11344; See Union Pacific
Corp. - Control - Missouri Pacific Corp. (hereinafter
UP), 366 I.C.C. 459 (1982).
In determining whether a proposed consolidation
is consistent with the public interest, the ICC must
consider the following factors:
(1) the effect of the proposed transaction on the
adequacy of transportation to the public;
(2) the effect on the public interest of including,
or failing to include, other rail carriers in
the area involved in the proposed transaction;
(3) the total fixed charges that result from the
proposed transaction;
(4) the interest of carrier employees affected by
the proposed transaction; and
(5) whether the proposed transaction would have an
adverse effect on competition among rail
carriers in the affected region.
49 U.S.C. SECTION 11344(b).
Under the public interest standard, the
Commission performs a balancing test weighing "the
potential benefits to applicants and the public against
the potential harm to the public." 49 C.F.R. 1180.1(c).
The ICC must balance any anticompetitive effects of the
proposed consolidation against anticipated transportation
benefits. UP, 366 I.C.C. at 485; Santa Fe Southern
Pacific Corp. - Control - Southern Pacific Transp. Co.
(hereinafter Santa Fe), 2 I.C.C.2d 709, 723 (1986).(1)
The fact that a proposed merger may have anticompetitive
effects is, in itself, not a barrier to approval of the
transaction, provided that corrective conditions can be
imposed to mitigate potential harms. Santa Fe, 2
_______________________
1 The Commission, however, does not sit as an
antitrust court to determine compliance with
antitrust laws. UP, 366 I.C.C. at 485. "The
Commission's statutory obligation under the public
interest standard requires that any anticompetitive
effects of a consolidation be balanced against its
benefits. The Commission is empowered to disapprove
consolidations which would not violate the antitrust
laws and to approve consolidations even if they
otherwise would violate the antitrust laws." Santa
Fe, 2 I.C.C.2d, 723.
I.C.C.2d 714. Indeed, the Commission has broad authority
-- which it has frequently exercised -- to impose
conditions on consolidations, including those that might
ameliorate potential anticompetitive effects of a
consolidation. 49 U.S.C. SECTION 11344(c).
In UP, the Commission set out the criteria for
imposing conditions to remedy anticompetitive effects.
In particular, the Commission stated that it would not
impose public interest conditions unless it found that
the consolidation might produce effects harmful to the
public interest, that the conditions to be imposed would
ameliorate or eliminate the harmful effects, that the
conditions would be operationally feasible, and that the
conditions would produce public benefits outweighing
their harm to the merger. UP, 366 I.C.C. at 562; Rail
Consolidation Procedures, 363 I.C.C. 784, 792 (1981).
The Commission has applied these standards in
merger proceedings that involved "end-to-end" as well as
"parallel" configurations. The precedents inform us that
"end-to-end" combinations are not assured of
unconditional regulatory approval; conversely, "parallel"
mergers are not treated as illegal per se. Indeed, many
rail mergers approved by the ICC have involved a
significant degree of parallelism. The important point
is that, notwithstanding the configuration or
characteristics of a particular merger proposal, the ICC
is bound to weigh the public benefits and detriments,
and, where potential detriments exist, impose appropriate
conditions to ameliorate or eliminate the competitive
harm. The ultimate determination by the ICC is made only
after a full evidentiary record has been developed and
all interested parties have had an opportunity to
participate. Under these circumstances, it is
presumptuous to predict a probable regulatory outcome
before a proceeding has even commenced. Advocates of the
ill-fated Santa Fe/Southern Pacific merger can attest to
that observation.
One of course cannot predict at this time
whether a contemplated UP/Santa Fe merger would meet with
ultimate regulatory approval. The details of the merger
have not yet been arranged; necessary studies have not
been conducted; interested parties have not been heard
from. It is a different matter, however, to assess
whether UP could develop a credible merger proposal
involving Santa Fe that would warrant ICC review under
existing statutory and regulatory standards. In my
judgment, UP has presented such a credible proposal.
I have had the opportunity to review a
memorandum prepared by UP officials(2) describing public
benefits from service improvements, savings and
efficiencies that would flow from a UP/Santa Fe merger.
That memorandum also identifies markets where competition
could be adversely affected by the proposed merger and
states UP's willingness to offer and/or accept conditions
where competitive problems are demonstrated or conceded
to exist. What, in my view, is significant about this
memorandum is the candid -- and realistic -- approach
adopted by UP. Notwithstanding substantial public
benefits that may flow from a UP/Santa Fe merger --
certain of them uniquely available as a consequence of
parallel characteristics -- the effect on rail
competition will admittedly be material. UP acknowledges
______________________
2 I understand that a copy of this memorandum has been
furnished to Santa Fe.
that adverse effects on rate and service competition will
have to be resolved and is prepared to accept remedial
conditions. This approach is in marked contrast to the
proponents of the only rail merger proposal in recent
history that was denied by the Commission -- the proposed
Santa Fe/Southern Pacific merger. Denial of that
proposal was, in large part, attributable to the failure
of proponents to even acknowledge, let alone deal with,
anti-competitive effects. In the circumstances which UP
presents, the ICC's task is to determine whether
appropriate conditions can be fashioned adequately to
cure the competitive harm without unduly eroding the
public benefits that would accrue from the proposed
merger. And that task is properly and routinely
performed by the ICC after the record in the merger
proceeding is completed, not by opponents before an
application is filed.
It is also important to recognize that merger
proposals are not reviewed by the Commission in a vacuum.
Not only is the "public interest" standard appropriately
broad, but the Commission is also guided by national
transportation policy. The dominant theme of that
Congressional policy is to "ensure the development and
continuation of a sound rail transportation system with
effective competition among rail carriers and with other
modes." 49 U.S.C. SECTION 10101a(4); UP, 366 I.C.C. at 484.
Over the last twenty years the rail industry
has undergone fundamental change. The 1970's found over
one-third of the industry mired in bankruptcy. Spurred
by passage of the Staggers Act, the 1980's witnessed a
revitalization and relative stability. Productivity
improved markedly due largely to shedding surplus labor,
equipment and plant that were the residual of the
regulated era. However, some fundamental problems
persisted. Railroads continued to lose market share,
particularly to trucks, which highlights the fact that
even with the productivity gains rail offered more costly
and less reliable service than its competitors. The rail
industry also continues to fall uncomfortably short of
even earning a return equivalent to its cost of capital.
These impediments exist at a time when market forces are
presenting the industry with an opportunity to gain back
market share. With its physical capacity strained and
capital in short supply, the rail industry must devise
novel solutions to improve its utilization of assets to
respond to this unprecedented market challenge.
It is in this context that I believe the
Commission would consider the proposed UP/Santa Fe
merger. The proposed merger -- particularly its parallel
characteristics -- presents an innovative approach to the
industry's capacity and service problems. As explained
in the UP memorandum, a combined UP and Santa Fe could
dedicate one of its main corridors to expedited traffic
and solid unit trains that are time sensitive; alternate
corridors can be utilized by trains that have less need
for expedition. Currently, for both railroads, both
types of shipments have to be handled over the same route
with resulting delays and inefficiencies to the detriment
of the railroads, shippers and competition. Thus, a
proposed UP/Santa Fe merger would present the Commission
with a unique opportunity to assess whether the rail
industry can resolve its capacity and capital shortfall
problems through combination.
In conclusion, the nature and extent of the
potential public benefits that could result from a
UP/Santa Fe merger, together with UP's commitment to
ameliorate anticompetitive effects, enables the UP to
advance a credible merger proposal that warrants
favorable consideration by the ICC.
Date: October 21, 1994 /s/ John F. DePodesta
John F. DePodesta
[Letterhead of Bryan Cave]
WALTER B. MCCORMICK, JR.
Biography
Walter B. McCormick, Jr. is a partner with the
international law firm of Bryan Cave. He has an
extensive background in transportation law and policy.
Mr. McCormick is a former General Counsel of
the U.S. Department of Transportation. In this capacity,
he served as the Department's chief legal officer, and as
its third ranking official after the Secretary and Deputy
Secretary. He supervised a legal staff of more than 600
lawyers in nine federal agencies, including the Federal
Railroad Administration, the Federal Transit
Administration and the Federal Highway Administration.
Mr. McCormick's background also includes more
than a decade of experience on the senior staff of the
United States Senate. He was General Counsel of the
Committee on Commerce, Science and Transportation in the
99th Congress, serving as the principal legal advisor to
the Committee during Congress' privatization of Conrail.
Mr. McCormick was Minority Chief Counsel and Staff
Director of the Committee in the 100th, 101st and 102nd
Congresses. In this capacity, he supervised program
authorization and Congressional staff oversight of more
than 20 federal agencies, including the U.S. Department
of Transportation, the Interstate Commerce Commission and
the National Transportation Safety Board. He was deeply
involved in federal policy development, and supervised
the drafting of many transportation laws. During his
tenure with the Congress, Mr. McCormick was identified by
Roll Call magazine as one of the 50 most influential
staffers on Capitol Hill, out of more than 15,000 who
work there.
Mr. McCormick holds degrees in journalism and
law from the University of Missouri. He has studied
economics and political science at Georgetown University
and has completed the program for senior managers in
government at Harvard University's John F. Kennedy School
of Government. He is a member of the Transportation Law
Section of the Federal Bar Association.
Bryan Cave is based in St. Louis, Missouri. It
has more than 400 lawyers in nine U.S. cities and three
foreign countries. The Washington office, where Mr.
McCormick is resident, has 60 lawyers.
[Letterhead of The University of Tennessee]
October 21, 1994
Mr. James V. Dolan
Vice President - Law
Union Pacific Railroad
1416 Dodge Street
Omaha, NE 68179
Re: PROPOSED MERGER OF UNION PACIFIC AND SANTA FE
Dear Jim:
As you requested, this letter outlines my assessment of
the likely impacts on customers of the proposed UP/Santa
Fe merger. Overall, I feel there are numerous ways in
which the shipping public, as well as U.S. industry in
general, will gain from such a merger, and for this
reason I agree that the combination of Union Pacific and
Santa Fe will produce significant benefits. Based on my
academic and research background as it relates to the
transportation and logistics industries, and on my
involvement with research projects dealing with
transportation industry customers and their business
needs, I feel that I am well-qualified to offer the
information and opinions which follow. A more detailed
statement of my professional qualifications is included
as Exhibit B to this letter. You have asked for my
independent assessment of these matters. As you are
aware, I have never testified for Union Pacific in any
ICC case, and have not been retained by Union Pacific to
testify in a UP/Santa Fe merger proceeding. My only
prior connection with Union Pacific is that I have
performed some very limited consulting assignments for
Union Pacific during the past two years.
The U.S. railroad industry has been undergoing
significant change -- future priorities will require the
development of new and improved ways to create additional
value for the shipping public. The U.S. rail industry of
the future must strive for and achieve excellence in a
number of key areas of customer needs.
Included are the following:
* Service Quality
* Leveraging Information Technology
* Cost
* Productivity and Asset Utilization
* Risk Reduction
* Simplify/Strengthen Supplier Relationships
* Competitive Advantage for Customers
through Transportation/Logistics
Essentially, these are the principal areas in which the
U.S. rail industry must excel. Superior performance will
not only help the railroads to meet and exceed the
requirements of their customers, but will permit these
customers to be more competitive in their markets as
well.
Attached to this letter is Exhibit A which identifies how
the UP/Santa Fe merger will facilitate progress in the
seven areas of customer needs identified above. Based on
my understanding of the proposed UP/Santa Fe merger, it
is my opinion that this combination will be a significant
factor in helping to meet the needs which are outlined,
and to create additional value for the shipping public.
The following paragraphs provide a commentary relating to
the several types of customer needs identified in Exhibit
A.
SERVICE QUALITY
The issue of greatest importance to rail customers today
is improvement of service quality. The UP/Santa Fe
merger will provide rail customers with consistently
superior, high-quality levels of service which they need
to satisfy their own customers' needs. Enhancements in
single-line service and "seamless" operations will be of
value to customers moving service-sensitive freight
through their logistics networks. Operational
improvements such as more frequent train departures will
translate into improved consistency, flexibility and
responsiveness to customers' needs. This will attract
new customers to the rail industry and accelerate the
growth of truck-rail intermodal operations.
The magnitude of service quality improvements achievable
in a merger of UP and Santa Fe are impressive. Both
railroads are viewed as high-quality service providers,
and the combination will further enhance overall levels
of service.
LEVERAGE INFORMATION TECHNOLOGY
It is my opinion that there will be a direct correlation
between responsiveness of the railroads to customer needs
and the extent to which the individual railroads are able
to manage information and information technology
successfully. Currently, there are areas in which the
availability of timely, accurate information is essential
to meet customers' service objectives. In the future,
management of information technologies in providing
transportation and logistics services will distinguish
superior transportation companies.
UP and Santa Fe are among the best in the industry in
terms of managing customer information resources. Among
the synergistic effects of the UP/Santa Fe merger would
be the opportunity to leverage the information
technologies of these two firms into a world-class standard.
COST
The UP/Santa Fe merger will be accompanied by significant
opportunities for cost reduction and greater efficiency
of operations. Essentially, the merger of two lines
which have parallel operations in certain areas will
enable the merged system to experience operating and cost
savings, and overall increased efficiency.
The merged UP/Santa Fe system will generate significant
cost efficiencies. Use of shorter routes and more
consistent transit times will enable customers to
experience significant reductions in terms of total
logistics costs. The reduction of customer needs for
pipeline and warehouse/plant inventories, for example,
will represent a key area of cost savings for customers.
PRODUCTIVITY AND ASSET UTILIZATION
Merger of UP and Santa Fe will lead to productivity
improvements and greater opportunities for improved asset
utilization. Improved service quality will lead to
better equipment utilization for the UP/Santa Fe, as well
as for customers who own or lease equipment. These
positive effects on car supply will increase productivity
and reduce working capital requirements.
Of critical importance is that the UP/Santa Fe merger
will facilitate a "reengineering" of two major Western
rail operations, thereby creating capacity and providing
improved levels of service and equipment turnaround times
for the shipping public. In effect, the UP/Santa Fe
merger will increase available capacity of the U.S. rail
industry.
RISK REDUCTION
Largely through the availability of improved levels of
service, rail industry customers will be more confident
that shipments will arrive when needed, and thus they
will enjoy an overall reduction in the risk associated
with shipping by rail. Since reduced risk translates
into reduced cost, this would be an added benefit to
UP/Santa Fe customers.
SIMPLIFY/STRENGTHEN SUPPLIER RELATIONSHIPS
One of the more prevalent trends in the transportation
industry today is the move by customers to "core carrier"
programs, and the development of "shipper-carrier
partnerships." These are evidence that fundamental
change is occurring in the way that customers are
structuring their business relationships with suppliers
of all types, including providers of transportation/logistics
services. While each customer certainly has specific
interests which need to be protected, there is general
agreement that the development of meaningful relationships
with a fewer number of suppliers will lead to improved
service and reduced cost.
A major benefit to customers resulting from the UP/Santa
Fe merger will be single-firm accountability for a large
part of, and in many cases all of, the through movement.
While recent rail initiatives have been aimed at
improving the "connectedness" of interline rail
operations, the greater breadth of single-line service
provided by a combined UP/Santa Fe operation will help
greatly to achieve this objective.
COMPETITIVE ADVANTAGE FOR CUSTOMERS THROUGH
TRANSPORTATION/LOGISTICS
Sometimes it is easy to forget that rail industry
customers are in business to serve customers of their
own, and that the availability of higher-quality, more
efficient rail services result in increased business for
the customers who utilize rail services.
In addition to the fact that the UP/Santa Fe will be a
significant influence on the growth of intermodal
traffic, customers of the merged operation will enjoy
greater access to Mexican gateways and port areas. The
UP/Santa Fe merger will attract additional traffic from
non-rail sources through improved and greater service
offerings.
CONCLUSION
Although the preceding sections have identified a number
of ways in which the UP/Santa Fe merger will facilitate
the accomplishment of key customer needs, there are
several of these ways in which the UP/Santa Fe represents
a distinctly superior alternative to a Burlington
Northern/Santa Fe merger. Included would be the
following:
* Significant improvement in service
reliability and asset and equipment
utilization as a result of using the best
routes and facilities of each carrier;
* Greater access by U.S. manufacturers to
Mexican markets through a relatively large
number of key gateway points -- this will
greatly help to further the objectives of
NAFTA;
* UP/Santa Fe will attract increased
intermodal volumes, and be a preferred
alternative for auto train movements; and
* The merger will enable a well-intentioned
"reengineering" of the joint operations of
two premier Western roads. The end result
will be improved efficiency and
effectiveness of rail operations in the
areas served.
Overall, the bottom line is that UP/Santa Fe and rail
industry customers will become more cost and service
competitive in their markets. These represent
significant public benefits which would be difficult to
achieve otherwise. As stated previously, I feel that
there are numerous ways in which the shipping public, as
well as U.S. industry in general will gain from such a
merger, and for this reason I conclude that the combination
of Union Pacific and Santa Fe will produce significant
shipper benefits and will be in the best interest of the
shipping community.
Sincerely,
/s/ C. John Langley Jr.
C. John Langley Jr., Ph.D.
John H. "Red" Dove Distinguished
Professor of Logistics and
Exhibits attached
EXHIBIT A
CUSTOMER NEEDS IN THE
FUTURE (RAIL) TRANSPORTATION MARKETPLACE
Customer Needs How Facilitated by UP/Santa Fe Merger
___________________________________________________________________________
Service Quality - Single-line service to move
service-sensitive freight more
efficiently through customer
logistics networks
- Faster, more consistent transit
times lead to greater satisfaction
of customers' customers
- Superior, high-quality customer
service needed to succeed in
today's/future
transportation/logistics
marketplace
- UP/Santa Fe more frequent train
departures will increase available
shipping options
- Shippers desire "seamless"
alternatives from the rail industry
___________________________________________________________________________
Leverage Information - Information technology regarded as
Technology the key to future rail industry
operating, cost, and customer
service improvements
- UP/Santa Fe will rationalize and
improve information systems which
already are superior in the
industry
___________________________________________________________________________
Cost - Operating and capital cost savings
are significant in a merger of
parallel lines such as UP/Santa Fe
- Improved service quality will
reduce customers' needs for
pipeline and warehouse/plant
inventories
- UP/Santa Fe merger will produce
overall transportation efficiencies
and lead to reduced total logistics
costs
___________________________________________________________________________
Productivity and Asset - Operating efficiencies of UP/Santa
Utilization Fe will increase capacity of
overall rail network
- "Reengineering" of UP/Santa Fe rail
network will produce significant
operating cost and capital savings
- Improved service quality will
permit better equipment utilization
for both UP/Santa Fe and shipper-
owned equipment
- Positive impacts on car supply will
increase productivity and reduce
capital needs
___________________________________________________________________________
Risk Reduction - Service quality improvements will
enable customers to reduce overall
business risk
- Enhanced flexibility reduces
business risk for shipper customers
- Reduced risk translates into
reduced cost
___________________________________________________________________________
Simplify/Strengthen - UP/Santa Fe consistent with
Supplier Relationships shippers' moves toward "core
carrier" strategy
- Customers benefit from greater
accountability for all or a large
part of the through movement
- Improves overall ease of doing
business through single point of
contact for matters such as
rate/contract negotiation, requests
for car tracing, freight claims,
and invoicing and billing
- Development of meaningful shipper-
carrier partnerships facilitate
service improvements and cost
reductions
___________________________________________________________________________
Competitive Advantage - Strength of UP/Santa Fe will draw
Through additional traffic to
Transportation/ rail/intermodal service
Logistics - Overall threshold levels of rail
industry service will rise as a
result of UP/Santa Fe
- Additional gateways, ports, and
border crossings in merged UP/Santa
Fe operations will facilitate North
American and global commerce
- UP/Santa Fe customers will become
more cost and service competitive
in their markets
___________________________________________________________________________
10/21/94
EXHIBIT B
C. JOHN LANGLEY JR., PH.D.
BIOGRAPHICAL SKETCH
C. John Langley Jr. is the John H. "Red" Dove
Distinguished Professor of Logistics and Transportation,
in the Department of Marketing, Logistics and
Transportation at the University of Tennessee. Degrees
include the B.S. (Mathematics), M.B.A. (Finance), and
Ph.D. (Business Logistics and Transportation), all of
which were completed at Penn State University.
Teaching interests include logistics systems
and strategy, transportation strategies, and customer-
driven marketing systems. Research interests are in
logistics quality, supply chain strategies, and
transportation marketing and pricing issues. Recent
publications have appeared in journals such as the
Journal of Business Logistics, the International Journal
of Physical Distribution and Materials Management, and
the Transportation Journal, and Transportation Executive
Update.
Also, he is a co-author of two recently
published textbooks: The Management of Business
Logistics, and Traffic Management: Planning, Operations,
and Control. He participates as a faculty member in
various executive and management programs at the
University of Tennessee, Northwestern University,
University of South Florida, Syracuse University,
University of Miami, and Penn State University.
Dr. Langley served on the Executive Committee
of the Council of Logistics Management from 1984-1992,
and was President of the national organization for 1990-
1991. Also, he is a member of the American Marketing
Association and the Warehousing Education and Research
Council.
Has been actively involved with industry as an
Associate Engineer with Raytheon Corporation, and has
been involved in significant consultancies and/or
executive development with a number of major U.S.
corporations. Current research projects are related to
logistics quality, network design, and transportation
strategy and economics. Recently returned from logistics
and transportation-related visits to Japan, China,
Europe, Middle East, and Africa.
Dr. Langley was recently selected as a Faculty
Scholar of the University of Tennessee College of
Business Administration, and in 1989 was honored as
Outstanding Alumnus of the Penn State Business Logistics
program. In 1993 he was the recipient of the Council of
Logistics Management's Distinguished Service Award.
STATEMENT OF ROBERT N. KHARASCH
Professional Qualifications and Experience.
My name is Robert N. Kharasch; my address is P.O.
Box 1375, Anguilla, B.W.I. From July, 1951 through
December, 1992, I practiced law in Washington, D.C.,
specializing in transportation law and international
transactions. I was a founder of the Washington Law Firm
of Galland, Kharasch, Morse & Garfinkle, P.C., located at
1054 31st Street, N.W., and was its Senior Partner for a
number of years. I have appeared before the United
States Supreme Court, the Federal Courts of Appeal and
District Courts, the Interstate Commerce Commission, the
Federal Maritime Commission, the Department of
Transportation and the former C.A.B., and many State
courts, representing carriers by all modes, including
railroads, steamship lines, airlines, freight forwarders,
NVOs, as well as major shippers by rail, truck, sea, and
air. I was appointed coordinating counsel for the
opponents of the proposed Santa Fe - Southern Pacific
rail merger, and appeared in that case for the MKT. I
also represented MKT in the proceedings in which it was
acquired by the UP. I hold degrees of Ph.D. and B.S.
from the University of Chicago, and the degree of J.D.
from the University of Chicago Law School.
Neither I nor Galland, Kharasch, Morse & Garfinkle, P.C.
is representing Union Pacific Corporation or the Union
Pacific Railroad Company [UP] or any other party with
respect to the proposed UP-Santa Fe merger, nor have the
firm or I ever represented UP.
Purpose of this Statement.
Counsel for the UP have requested me to give my
opinion on the likelihood of an Interstate Commerce
Commission [ICC] approval of a merger between UP and the
Santa Fe Pacific Corporation [SF, or the Santa Fe], as
proposed in a letter of October 5, 1994 from Drew Lewis
of the UP to Robert D. Krebs of the Santa Fe. Also, I
understand that UP has asked similar opinions from former
Commissioner Malcolm Sterrett and from John F. DePodesta,
Esq. Such opinions at this stage of the matter must, of
course, rest on a number of assumptions, all of which
remain to be tested against the evidence to be produced
by the proponents and the opponents in formal ICC
proceedings.
Assumptions for the purposes of this Statement.
The assumptions made for the purposes of this
statement are as follows:
(1) UP has supplied me with a copy of a fourteen-
page "Memorandum" dated October 17, 1994 signed
by John H. Rebensdorf of the Strategic Planning
Department of the UP. For present purposes, I
have assumed that the statements of Mr.
Rebensdorf as to service improvements, savings
and efficiencies flowing from a UP-SF merger
will be supported by the evidence in a hearing
on the UP-SF merger. For reasons stated below,
it is highly probable that a UP-SF merger will
produce major savings and service improvements.
(2) In addition, I have assumed that the UP, as it
states, will agree to conditions that preserve
or enhance active and effective rail
competition in all rail markets where there
would otherwise be a significant reduction in
rail competition as a result of a UP-SF merger.
This is a highly important, and indeed critical
assumption, for reasons discussed below.
(3) Finally, I have assumed that the ICC will give
weight, among other benefits of a UP-SF merger,
to two public interest factors that have
recently become of greater national
significance, and to one private-interest
factor. The first public interest factor is
the stimulation of international trade with
Mexico, now a part of national policy as a
result of the adoption of NAFTA. The second
public factor is the growing national need to
stimulate exports, including agricultural
exports. The private interest factor is the
payment of fair value to the present
stockholders of Santa Fe.
Legal and Regulatory Background.
The proponents of a merger of parallel railroads
bear a very considerable burden of proof, since by law
and regulation a major emphasis in the ICC's balancing
test is on preserving, not curtailing, competition. In
one sense, this regulatory burden is somewhat
paradoxical, since, while both parallel and end-to-end
mergers can promise improved single-line service, there
are efficiencies of service and savings that are only
available in mergers of parallel lines. Thus, the job of
the Applicants for a parallel merger is not just to
demonstrate the possible transportation benefits flowing
from the merger. This is the easier part of the task,
for there should indeed be efficiencies in service, and
overhead and operational savings. Because the Applicants
in a parallel merger can select the shortest and most
suitable lines for their new single line services, it is
to be expected that mileage, service, and speed
improvements will result. Here, the Rebensdorf statement
lists the UP service improvements flowing from the
optimal use of UP and SF facilities.
Repairing Any Significant Loss of Competition.
The more difficult job for the Applicants in a
parallel merger case is to assure the Commission and the
shipping public that they have taken steps to repair any
significant loss of rail competition caused by the
merger. This task is, I believe, absolutely essential to
success of a parallel merger, both as a matter of
economic theory and of ICC doctrine and precedent.
The failed Santa Fe-Southern Pacific merger case
[the SFSP Merger] offers an instructive example. In this
case, the two proponents took some startling positions.
First, they asserted that intermodal competition was so
great that rail-to-rail competition was no longer of
public importance. Second, the top management of Santa
Fe determined at the outset that, as a matter of policy,
the Santa Fe would not agree to any competition-restoring
conditions. Although the opponents sought to initiate
negotiations for a group of conditions that would permit
Applicants and opponents to make a joint recommendation
to the Commission, these efforts were rejected by the
then top management at the Santa Fe. Finally, in support
of their hard-line position, the SF and SP presented a
case that was neither internally consistent nor based on
real-world competitive conditions. The Applicants'
exhibits and methodology designed to prove that rail
competition is of no importance simply did not hold
water. As a result, the ICC rejected the merger, despite
staff recommendations to the contrary.
A UP-SF merger, of course, would not have the effect
of creating only one carrier in any major corridor.
While there would be effects on rail competition, the UP,
according to Mr. Rebensdorf's statement, stands ready to
"...grant conditions that will address all legitimate
competitive issues and actually heighten competition...."
This is a refreshing difference from the SF-SP position.
While there are complex negotiations involved in
designing and agreeing on conditions, the process must
begin with a recognition by the Applicants that when a
merger has serious anti-competitive effects, the damage
must be repaired by providing replacement competition.
The Santa Fe refused to do this in the SF-SP case, but
the UP appears ready to do so in a UP-SF merger. This is
a critical difference.
The conditions creating replacement competition must
be such that the railroads that will provide competition
can actually compete successfully. Such conditions must
include the ability to reach the shippers and the ability
to reach the receivers, the ability to operate
competitively direct routes, and the ability to operate
competitively fast and regular service.
Major shippers dependent on rail service (such as
those in the paper industry) have expended much effort in
locating their plants where they can obtain competitive
rail services, and I have participated in some of the
lengthy negotiations to assure long-term rail service to
new plants. In any rail merger case, such shippers will
ask the Commission to protect their competitive access to
more than one railroad, and their pleas will have merit.
With the advent of Contract Rates, and the demise of the
old industry-set conference rates, competitive access is
more important than ever to shippers of large quantities
of heavy cargo. The UP, if it permits effective
competitive access in those corridors where there will be
a significant reduction of competition, has a good chance
of obtaining shipper support for a merger that promises
better service. A merger that provides better service
and maintains rail competition is a net plus for
shippers. A merger that promises better service, but
does not maintain competition, like the SF-SP merger, can
be seen by shippers as no net benefit.
Many writers, and many ICC Commissioners, have
recognized that the hundred or hundred-and-fifty year-old
rail map is by no means the ideally efficient map for
today's traffic flows, nor is the present trackage
ownership by individual railroads ideal. These same
writers and Commissioners have recognized that the
process of ICC approval or disapproval of such rail
mergers as are brought to the Commission is not a process
well-suited for the design of an optimum rail network.
Yet, in a curious way, a parallel rail merger
accompanied by realistic new competitive opportunities
may go a long way toward optimizing rail service and
efficiencies, for two reasons. First, the parallel
merger automatically provides opportunities for the
merged railroad to provide the best routes and the best
service from the merged network. Second, if rail
competition is preserved by conditions, there may be
opportunities for the services created by competition to
provide still more benefits to shippers, by offering new
routings and new one-carrier services that did not exist
before the merger.
To be quite clear on this point, suppose Railroad A
and Railroad B merge, and the merged AB offers conditions
allowing Railroad X to offer new direct services over a
route involving trackage of (former) A, and (former) B
lines. These new A-B-X routings may offer speed,
mileage, and other new shipper benefits and public
benefits that should be counted in the balance in
addition to the A-B merger benefits.
Because of this double opportunity to provide better
rail service, I believe the Commission would be receptive
to a UP-SF merger that promises not only better service
over the UP and SF lines, but also better service over
newly created competitive routings. With such a
willingness on the part of UP, the merger application
stands a good chance of Commission approval. Without
such careful attention to competitive impacts and
shippers' needs for competition, any parallel merger
risks the fate of the SF-SP merger.
Other Potential Public Benefits.
Without the full traffic data, one can only
speculate on the potential benefits of a UP-SF merger on
traffic to and from Mexico. In the SF-SP case it did
appear that the SF access to Mexico at El Paso is not the
ideal for most traffic. Judging from preliminary
enthusiastic reports on the burgeoning Mexican economy,
and the national policy embodied in NAFTA, improved
service to Mexico could be a substantial public benefit.
Similarly, the general growth of World trade, and
the increasing importance of U.S. exports, including
agricultural exports, argues for the public importance of
improving rail services for export commodities. Again,
there is every reason to believe that the Commission will
be sensitive to these benefits.
Stockholder Benefits.
There is a striking feature in the Lewis-Krebs
exchange of letters dated October 5, 6, and 11, 1994.
What is striking is the absence of any discussion by Mr.
Krebs of the possible rewards to stockholders of Santa Fe
in at least considering the UP offer. The abrupt Krebs
reply of October 6 does not appear on its face to be an
attempt to maximize shareholder values. Again, this is
not an issue to be prejudged, but it does appear that the
UP offer may be more rewarding to SF stockholders. Thus,
in my view, there was no basis for the Santa Fe to
dismiss the UP offer out of hand. Stockholders'
representatives are quite proper parties to an ICC merger
proceeding, and are entitled to be heard.
Conclusion.
It is surely early times to attempt to prophesy
whether the ICC will approve a UP-SF merger proposal. It
is not too early, though, to say that the UP proposal is
not the same as the failed SF-SP proposal, in that the UP
recognizes, and promises to correct, losses of
competitive services. If conditions adequate to preserve
rail competition are granted, then there may be dual
benefits from a merger: the parallel merger benefits,
and the benefits from the newly-created competitive
services. In this way, the public benefits of a UP-SF
merger would merit Commission approval.
In my opinion, the UP proposal has good prospects of
success.
/s/ Robert N. Kharasch
Robert N. Kharasch
Friday, 21 October, 1994
My name is Malcolm M. B. Sterrett and I am an
attorney with extensive experience in rail transportation
matters in both private practice and in the public
sector, including a term as a Commissioner at the
Interstate Commerce Commission. While at the ICC during
the 1980's, I considered and voted on several rail merger
proposals, most notably the successful application of the
Union Pacific/Western Pacific/Missouri Pacific and the
application of Santa Fe/Southern Pacific, which was
denied. I have been asked by the Union Pacific
Corporation to examine materials relating to its offer to
acquire the Santa Fe and, based on my experience, to
provide an assessment of the proposal from a regulatory
perspective. I have concluded that the Union Pacific can
indeed make a strong case for approval by the ICC and
that it is simply wrong at this point to dismiss the
proposal out of hand on the ground that it is
substantially less likely to receive ultimate ICC
approval than the proposal of the Burlington Northern.
In reaching this conclusion, I have reviewed a
memorandum prepared by the Union Pacific analyzing the
case that the UP is prepared to present to the ICC in
support of its application as well as materials relating
to the Burlington Northern proposal and ICC merger
decisions. I wish to emphasize that the ultimate
decision on either the Union Pacific or the Burlington
Northern merger application will be made by the
Commission only after a full evidentiary record has been
developed with input from numerous affected parties and
that at this point it is not possible for anyone to know
which parties will actively appear, exactly what
positions they will adopt, or what evidence will be addressed.
In considering any merger proposal, the ICC
must approve the application if it finds that the
transaction is consistent with the public interest. This
public interest standard requires the Commission to
consider whether on balance the transaction would produce
public transportation benefits that outweigh any anti-
competitive effects, principally with respect to rail
competition, that would result from the proposed
transaction. In authorizing a merger, the Commission is
empowered to impose appropriate conditions to ameliorate
or eliminate any anti-competitive effects of the
transaction. The imposition of such conditions has
permitted the ICC to approve various rail mergers that
otherwise would have materially reduced competition in
key geographic areas.
The memorandum outlining the case that the
Union Pacific is prepared to advance at the ICC sets
forth very substantial public benefits that would result
from the proposed Union Pacific/Santa Fe merger. These
benefits include new single-line service between a number
of key markets, substantial service improvements in
several important areas, including the intermodal,
automotive, chemical and energy markets, and significant
operating efficiencies that result in more effective
utilization of existing facilities and increased
capacity. These benefits compare favorably with benefits
resulting from other mergers approved by the ICC.
The Commission will have to weigh the balance
of these benefits with any anti-competitive effects that
have been demonstrated in the evidentiary record. Union
Pacific clearly recognizes that the UP and Santa Fe
systems are parallel in certain geographic areas such as
between California and the Midwest and in the corridor
linking Midwest grain producers with Gulf Coast ports and
these parallel aspects may well have substantial anti-
competitive impacts.
In my view, the key to the success of the Union
Pacific's case at the ICC will be the ability to fashion
conditions to respond to whatever legitimate competitive
concerns are proven to be inherent in the proposed
merger. While those concerns may prove to be more, or
less, extensive than what has been identified in the UP
memorandum, there is no reason to believe that such
concerns cannot be met by the imposition of appropriate
conditions. The Union Pacific has preliminarily
identified in its memorandum examples of conditions which
it would accept to meet potential competitive issues. It
is not necessary for the specifics of such pro-
competitive conditions to be agreed to at this stage.
The record has not been developed as to what competitive
issues should be addressed and, most importantly, there
has not been an opportunity for shippers, who have the
most at stake with regard to these issues, to have an
input as to how best to resolve competitive concerns.
The most recent merger of comparable size
(Santa Fe/Southern Pacific) was turned down by the ICC in
1986. Since there were similar competitive concerns(1)
with that proposal as will undoubtedly be raised with the
UP's proposal to acquire the Santa Fe, I believe it is
important to note that there is a critical distinction
between the two proposals. Most observers, including
____________________
1 The SFSP proposal involved the reduction of the
number of railroads from two to one in a major
corridor, while the UP proposal involves no similar
reduction in any major corridor.
myself, believe that the SFSP application was "winnable"
at the Commission if the applicants at the outset had
acknowledged that their proposal had certain anti-
competitive aspects and had been willing to work with
affected parties and the Commission to fashion conditions
to mitigate those aspects. Faced with applicants' all or
nothing posture and lacking a record sufficient to
provide confidence in the consequences and practicality
of possible pro-competitive solutions, the Commission
denied the application. While the applicants in that
proceeding subsequently negotiated numerous conditions
with other railroads and sought reconsideration by the
Commission, the ICC was, as a matter of policy,
essentially unwilling to give applicants two bites of the
apple. In marked contrast to the unsuccessful litigation
strategy employed in the Santa Fe/Southern Pacific
proceeding, the Union Pacific is proposing to recognize
and address the competition issues that proved to be the
stumbling block for regulatory approval of the SFSP
merger.
While it is clearly premature to predict the
ICC's ultimate judgment regarding a Union Pacific/Santa
Fe merger application, in my opinion the Union Pacific
has outlined a strong and credible case for approval.
There certainly is no reason to believe at this juncture
that such an application would meet the same fate as the
Santa Fe/Southern Pacific proposal.
/s/ Malcolm M. B. Sterrett
Malcolm M. B. Sterrett
October 21, 1994
[Letterhead of Bryan Cave]
October 21, 1994
James V. Dolan
Vice President-Law
Union Pacific Railroad
1416 Dodge Street
Omaha, NE 68179
Re: Union Pacific's Proposed Acquisition
of Santa Fe
Dear Jim:
You have asked for our assessment of the likely
position DOT would take concerning Union Pacific
Corporation's recently proposed acquisition of Santa Fe
Pacific Corporation. In particular, you asked whether
the public statements of Burlington Northern, Inc. ("BN")
and Santa Fe officials that a Union Pacific/Santa Fe
combination is unlikely to be approved because of
competitive concerns are supported by the positions DOT
has previously taken concerning mergers in the railroad
industry.
At this stage, our assessment is necessarily
preliminary. DOT typically does not take a position on a
railroad merger until a full factual record is developed
before the Interstate Commerce Commission ("ICC"), which,
of course, is yet to be done. Our assessment, therefore,
is based principally on the information Union Pacific has
provided us regarding the competitive issues that its
proposed acquisition might raise and our review of DOT's
past positions.(1) Because of the limited nature of the
factual record available now, it is not possible to
identify, or to assess fully, all possible competitive
questions the proposed acquisition might raise.
Based on the information available to us and
our review of DOT's past positions, however, we believe
it would be unlikely that DOT would oppose Union
Pacific's proposed acquisition of Santa Fe. Although the
proposed acquisition appears to raise certain competitive
issues, we understand that Union Pacific intends to
propose conditions that will ameliorate those competitive
concerns which DOT or others reasonably might have. In
addition, Union Pacific has identified substantial public
benefits which will result from the proposed acquisition.
It appears these public benefits should outweigh any
legitimate competitive concerns which remain.
1 In this regard, DOT most recently took a position on
a major railroad merger in Union Pacific Corporation
- Control - Missouri-Kansas-Texas Railroad Co.,
Finance Docket No. 30800 (1988).
DISCUSSION
Since passage of the Staggers Act in 1980,
there have been nine proceedings before the ICC dealing
with mergers or acquisitions of Class I railroads
reviewed under the "public interest" standard. DOT
participated in all but one of these proceedings. In
that time, the Department of Transportation has never
opposed a merger application, although in at least four
cases it urged that conditions be imposed -- or
negotiated -- to ameliorate potential anticompetitive
effects. Only one application -- that of Santa Fe
Southern Pacific in 1986 -- has been denied by the ICC in
the last 14 years.(2)
In Union Pacific's application to acquire
control of Katy -- the most recent proceeding involving a
merger of Class I railroads -- and in all the other
applications in which the DOT has participated since
1980, it has consistently taken the position that it
"believes that a transaction that offers public benefits
should be approved by the Commission if it would not
significantly reduce the level of competition or,
alternatively, if workable conditions can be imposed to
ameliorate the identified anticompetitive effects without
destroying the potential benefits as well."(3) Thus, for
the DOT, a "critical" factor in these proceedings "is the
effect of the proposed transaction on competition, as
reflected in the ability of shippers to continue to
receive competitive rates and services."(4)
2 In general, it appears to us that Union Pacific's
proposed acquisition raises fewer and less
problematic competitive questions than the Santa Fe
Southern Pacific application.
3 See, e.g., DOT brief in Union Pacific Corporation -
Control - Missouri-Kansas-Texas Railroad Co.,
Finance Docket No. 30800 (1988).
4 Id.
In analyzing the competitive effects of a
proposed merger, DOT first identifies the relevant
geographic and product or service markets which will be
affected. It then examines in detail what
anticompetitive effects the merger might have in any of
these relevant markets. Finally, DOT seeks to determine
whether, and what, conditions will ameliorate the
perceived anticompetitive effects.
In making its analysis, DOT focuses on traffic
corridors in which the proposed transaction will reduce
available options to shippers to choose among competing
railroads because of the elimination of competing
parallel rail lines. Probably the principal competitive
objections to the proposed Union Pacific/Santa Fe merger
will center on the parallel nature of Union Pacific and
Santa Fe rail lines in the Midwest North-South Corridor
and in the Chicago/Midwest to California Corridor. In
this regard, DOT has regarded as potentially troubling
aspects of rail consolidations in those corridors in
which the number of rail competitors is reduced from
three to two, or from two to one.
The parallel aspects of the proposed
transaction in the Midwest North-South corridor probably
will not cause DOT to have substantial concerns. Both
DOT and the ICC in the UP/MKT proceeding found that
significant competition exists in this corridor from
numerous railroads, such as BN, Southern Pacific, CP
Rail/Soo Line, and Kansas City Southern, and from stiff
trucking competition. This significant competition will
still exist after the proposed Union Pacific/Santa Fe
merger. In this corridor the number of rail competitors
will not be reduced from three to two or from two to one.
Further, we understand that Union Pacific
intends to propose conditions to ameliorate
anticompetitive effects which arguably might occur in
this corridor. Specifically, it intends to offer to sell
or to lease its OKT line, or to accept some other
appropriate condition, in order to endure strong rail
competition for shipments of Kansas and Oklahoma grain.
Because of the number of remaining railroads in this
corridor and the conditions Union Pacific intends to
propose, DOT is unlikely to oppose a Union Pacific/Santa
Fe consolidation based on the parallel aspects of the
Midwest North-South Corridor.(5)
5 It should be noted that the proposed BN/Santa Fe
merger would face the same parallelism problem in
the Midwest North-South Corridor.
The parallel nature of Union Pacific and Santa
Fe rail lines in the Chicago to California Corridor may
be more problematic for DOT. Rail competitors would be
reduced from three to two. Union Pacific's argument that
the remaining two railroads -- the Union Pacific and the
Southern Pacific -- would be even more competitive than
the existing structure may be sufficient to ease DOT's
concerns about competition in this corridor. But, it is
our understanding that Union Pacific intends to address
these concerns either by providing trackage rights into
California to BN, or by granting rights to Southern
Pacific that will significantly strengthen its
California-Midwest routes. In the past, DOT has been
receptive to these types of proposals. These proposed
conditions might well eliminate any competitive concerns
DOT would have regarding this corridor, or ameliorate
them sufficiently so they are outweighed by the public
benefits of the combination.
The proposed Union Pacific/Santa Fe merger
would also reduce some other, smaller locations from
three to two or two to one serving railroads. Some of
these situations might draw objections from other
railroads and shippers, and would thus have to be at
least considered by DOT. These competitive concerns,
however, do not appear sufficiently significant to
warrant a DOT recommendation of disapproval of the
proposed transaction. Any concerns should be eased by
Union Pacific's proposal to put another railroad at each
of these two to one points, and to sell or lease the OKT
line where some of the three to two points are located.
In the event any competitive concerns are not
fully ameliorated by Union Pacific's proposed conditions,
DOT still will weigh, under the "public interest"
standard, the public benefits of the proposed
acquisitions against these remaining concerns. Union
Pacific has already identified a lengthy list of
potential public benefits from its proposed acquisition
of Santa Fe including significant service benefits,
increased capacity over existing lines, cost savings and
efficiencies. Since Union Pacific has not yet had access
to Santa Fe information, all of the public benefits
probably have not yet been identified or fully
quantified. Regardless, it appears that these benefits
could be quite substantial.
DOT may be particularly receptive to the
specific public benefits identified by the Union Pacific
because they further some of the principal goals of the
Clinton Administration's transportation policy.
In January 1994, Transportation Secretary
Federico Pe a established a strategic plan for DOT which
has as its primary goal to "Tie America Together" through
an effective intermodal transportation system.(6) This
effort is to address what was described by the Department
as "fragmented transportation options" available to
shippers and the inability to move products easily from
one form of transportation to another.(7) In June 1994,
Secretary Pe a set forth the DOT's framework for
developing a National Transportation System that
"emphasizes connections, choices and coordination of
____________________
6 U.S. Department of Transportation Strategic Plan,
January 1994.
7 Id.
services."(8) Indeed, DOT's Framework for Strategic
Transportation Development says that:
"America's need for a well maintained,
uncongested, seamless transportation system
that serves the present and opens the future,
requires that we make a bold step and shift
from nurturing individual transportation needs
and fragmented projects to enhancing the
effectiveness of the Nation's transportation
system as a whole."(9)
The creation of new single-line routes, the
improved transit times, the reduction in intermediate
switching, the more effective utilization of congested
rail infrastructure, the coordinated use of technologies
and information systems, and the resulting impact on
safety and emissions which Union Pacific says will flow
from a merger between it and the Santa Fe are precisely
the type of objectives which DOT seems to be interested
in furthering.
Finding new ways to increase capacity of
existing transportation infrastructure is a key goal of
DOT not only in its National Transportation System
initiative, but also through its Intelligent Vehicle
Highway System Program. For Fiscal Year 1995, DOT has
received funding of $227.5 million to pursue technologies
and programs which will enhance the capacity, efficiency
and safety of the highway system, and enhance efforts to
attain air quality goals, in ways other than the addition
of new physical highway capacity. By increasing railroad
shipping capacity, Union Pacific's proposed acquisition
of Santa Fe could be considered to advance the goals of
this massive program -- at no cost to the federal
taxpayer.
CONCLUSION
Based on the foregoing, we believe that DOT is
unlikely to oppose, and may well support, Union Pacific's
proposed acquisition of Santa Fe with conditions along
the lines Union Pacific intends to propose. In our view,
statements suggesting that federal regulatory approval is
unlikely are plainly premature and are not soundly based.
Sincerely yours,
/s/ Walter B. McCormick, Jr.
Walter B. McCormick, Jr.
______________________
8 The National Transportation System; A Framework For
Strategic Transportation Development, U.S.
Department of Transportation, June 1994, pg. 3.
9 Id., at pg. 3.
STATEMENT OF PANEL OF ICC AND TRANSPORTATION EXPERTS
The undersigned were retained by Union Pacific
Corporation to review Interstate Commerce Commission and
transportation issues relating to a possible combination
of Union Pacific and Santa Fe Pacific Corporation.
We have reviewed a memorandum, dated October
17, 1994, prepared by Mr. John H. Rebensdorf of Union
Pacific Railroad Company. Such memorandum summarizes the
key elements of the factual case that Union Pacific would
expect to make to the ICC for approval of a combination
with Santa Fe.
The memorandum describes the substantial rail
service improvements and other benefits that Union
Pacific believes would result from a Union Pacific/Santa
Fe combination. The benefits include those in three
major areas: new single-line service, other significant
service benefits, and cost savings and efficiencies. The
memorandum also discusses the possible conditions, such
as right of other railroads to provide competitive
services over the consolidated system's lines and the
sale or lease of lines to other railroads, that Union
Pacific would be prepared to grant to other railroads in
order to address competitive issues relating to a
combination with Santa Fe.
Based on our review of this report, including
the benefits and competition-preserving conditions
described therein, discussions among members of the panel
and our own analysis and experience in this area, we
conclude the following:
Messrs. DePodesta, Kharasch and Sterrett, ICC
experts:
* Union Pacific has outlined a strong case for
ICC approval of a combination with Santa Fe
that warrants favorable consideration by the
ICC.
* A Union Pacific/Santa Fe combination should
have good prospects of obtaining ICC
approval.
Mr. McCormick, transportation expert:
* The Department is unlikely to oppose, and
may well support, a Union Pacific/Santa Fe
combination.
________________________________________________________________________
The participants in this solicitation include Union
Pacific Corporation ("Union Pacific") and the following
directors and executive officers of Union Pacific:
Robert P. Bauman (Director), Charles E. Billingsley (Vice
President, Controller), Richard B. Cheney (Director), E.
Virgil Conway (Director), Richard K. Davidson (Director,
President), John E. Dowling (Vice President - Corporate
Development), Spencer F. Eccles (Director), Ursula F.
Fairbairn (Senior Vice President - Human Resources),
Elbridge T. Gerry, Jr. (Director), William H. Gray, III
(Director), John B. Gremillion, Jr. (Vice President -
Taxes), Judith Richards Hope (Director), Lawrence M.
Jones (Director), Drew Lewis (Director, Chairman and
Chief Executive Officer), Richard J. Mahoney (Director),
Claudine B. Malone (Director), L. White Matthews, III
(Director, Executive Vice President - Finance), Mary E.
McAuliffe (Vice President - External Relations), Jack L.
Messman (Director), John R. Meyer (Director), Thomas A.
Reynolds, Jr. (Director), James D. Robinson, III
(Director), Robert W. Roth (Director), Gary F. Schuster
(Vice President - Corporate Relations), Richard D.
Simmons (Director), Gary M. Stuart (Vice President and
Treasurer), Judy L. Swantak (Vice President and Corporate
Secretary), Carl W. von Bernuth (Senior Vice President
and General Counsel). Union Pacific is the beneficial
holder of 200 shares of the common stock of Santa Fe
Pacific Corporation ("Santa Fe") purchased on October 6,
1994. 100 of such shares were purchased for $14 per
share in an open market transaction entered into on the
over-the-counter market and 100 of such shares were
purchased for $13-1/2 per share in an open market
transaction executed on the NYSE. No directors or
executive officers of Union Pacific own any shares of
Santa Fe common stock.
Certain employees of Union Pacific may be participants:
Mary S. Jones (Assistant Treasurer of Union Pacific),
Gary W. Grosz (Manager - Investor Relations of Union
Pacific), John J. Koraleski (Executive Vice President,
Finance and Information Technologies of Union Pacific
Railroad Company), James A. Shattuck (Executive Vice
President, Marketing and Sales of Union Pacific Railroad
Company), Arthur L. Shoener (Executive Vice President,
Operations of Union Pacific Railroad Company), James V.
Dolan (Vice President, Law of Union Pacific Railroad
Company), Michael F. Kelly (Vice President, Marketing -
Services of Union Pacific Railroad Company), John H.
Rebensdorf (Vice President, Strategic Planning of Union
Pacific Railroad Company). The aforementioned employees
of Union Pacific own in the aggregate less than 1% of the
outstanding shares of Santa Fe common stock.
Certain other representatives of Union Pacific who may be
participants:
Richard H. Bott (Managing Director at CSFirst Boston
Corporation), David A. DeNunzio (Managing Director at
CSFirst Boston Corporation), Gerald M. Lodge (Managing
Director at CSFirst Boston Corporation), Stephen C. Month
(Director at CSFirst Boston Corporation), Scott R. White
(Associate at CSFirst Boston Corporation), Samuel H.
Schwartz (Associate at CSFirst Boston Corporation),
Caroline P. Sykes (Analyst at CSFirst Boston
Corporation). None of the aforementioned employees of
CSFirst Boston Corporation own any shares of Santa Fe
common stock. In the normal course of its business,
CSFirst Boston may trade the debt and equity securities
of Santa Fe for its own account and the accounts of its
customers and, accordingly, may at any time hold a long
or short position in such securities. As of October 26,
1994, CSFirst Boston Corporation held a net short
position of less than 1% of the outstanding shares of
Santa Fe common stock.
