Tiny Rival Weighs Bid For Railroad Montana Rail Link May Enter Bidding For Southern Pacific

Montana Rail Link is floating a trial balloon about a competing offer to Union Pacific’s $5.4 billion buyout of Southern Pacific railroad.

The small Montana railroad - which is owned by one of the nation’s richest men, Dennis Washington - would buy the Southern Pacific and sell its five major parts to three or more railroads.

Montana Rail Link would keep and run the east-west mainline through Colorado. That includes 300 miles of Colorado track now slated for closure after the merger.

But Montana Rail Link’s attempt to buy Southern Pacific out from under Union Pacific is a long shot. In an interview with the Rocky Mountain News, Southern Pacific Vice Chairman Robert Starzel scorned the proposal as far too late, with the bride already at the altar.

But he confirmed Montana Rail Link Vice President Fred Simpson’s statement that his company has raised the possibility with Southern Pacific officials. Starzel said it was rejected because SP is bound by its merger agreement with Union Pacific.

However, Montana Rail Link’s proposal dovetails with a recent suggestion from the Justice Department. It said Southern Pacific could sell parts of its rail network to other willing bidders to raise the capital it needs to compete.

The Justice Department said this would enhance competition, instead of eliminating it in numerous markets across the West, as Justice contends the UP-SP merger would.

For Montana Rail Link’s competing bid to become reality, the Surface Transportation Board would have to accept the Justice Department logic and force some kind of auction, MRL Vice President Fred Simpson admitted.

“The main significance of our backup offer is that there’s an alternative” to the UP-SP merger, Simpson said. And this alternative could give the West four or more competing railroads instead of just two.

Simpson said his company has already offered $614 million in cash for Southern Pacific’s east-west mainline through Colorado. Two weeks ago, Conrail said it offered $1.5 billion for SP’s line from the Midwest to Texas. Starzel derided the offer as too low. But it set off brainstorming at Montana Rail Link.

The two offers add up to $2.1 billion for just two of SP’s five main parts, Simpson said. The merged railroad could take those offers and still have an east-west mainline across Wyoming to Chicago, and dense industrial networks in California and on the Gulf Coast, he said.

Or Montana Rail Link could buy Southern Pacific and do the dividing itself, he said.

Starzel made it clear that SP is not interested.

“We can’t sell off the most valuable pieces,” he said. “That’s selfdefeating.

“Also, you have to pay your taxes when you sell things at a profit.”