(c) L. & N.-Nashville, Chattanooga & St. Louis merger (295 1.C.C. 457). See also 355 U.S. 63 and 155 F. Supp. 98 (1957).—It is interesting to note that it was not until the late year of 1957 that a definite proposal of major importance in the field of consolidation again came before the Commission. This merger involved two railroads that had had a very close and cooperative relationship for a great many years. This cooperation extended not only to a broad program of interchange and routing agreements, but also involved avoidance of competition in the soliciting of traffic. But, despite this interdependence and close cooperation it became apparent to both roads that a substantial advantage would come from consolidation.

Objections to the merger came from the city of Nashville, minority stockholders and railroad labor. Other southern railroads quailfied their approval by having extensive trackage rights assigned to them. It is interesting to note that this was one important merger where a number of localities and local interests strongly supported the merger. The Commission in its decision referred to the operating advantages that would follow. Among these were the development of a more balanced traffic pattern, increased diversification which would provide resistance to water and motor competition, savings in solicitation, a provision of single line and, therefore, more efficient and more economical service instead of two line operations requiring interchange, and a large and more adequate car supply. Other matters mentioned were the development of a more adequate equality in competition with other major trunk lines in the area and the facilitating of a promotion of industrial development.

(d) Denial of control of the Central of Georgia by the St. LouisSan Francisco Railway (295 I.C.C. 563 (1957)).-The express purpose of the Frisco in its desire to get control of the Central of Georgia was to effect consolidation into a single trunk line operating company. Although this proposed control and merger offered significant advantages of an end-to-end type of merger which the Commission had approved in the cases cited above, it denied the application on the basis that stock control of Central of Georgia had been acquired through a voting trust without prior Commission approval thereby violating section 5(4). The Frisco was guilty of violating section 5(4) because it had failed to get permission on the basis of section 5(2)(b). There was substantial testimony in regard to the merits of the control and planned merger as well as that relating to the violation. However, the Commission in its decision did not pass upon the merits of the unification of the facilities, but based its denial upon violation of the procedure prescribed. The proposal was opposed by the Illinois Central and the Seaboard Air Line Railroads charging that the control would disrupt impartial relations. Both expressed the desire to have equal recognition of joint interest under a proposed trust agreement provided in section 5(2) (d). An alternative was to have extensive trackage rights. It is interesting to note that the Public Service Commission of Georgia supported the application of Frisco and opposed any condition of granting trackage rights to other trunk lines. The Commission's decision allowed the Frisco to retain beneficial interest in the stock, but transferred it to a corporate trustee. (e) Denial of the Atlantic Coast Line acquisition of control of Florida East Coast (307 I.C.C. 5) (1958).—The Atlantic Coast Line

desired to obtain control of the Florida East Coast with a view to unifying their operations. This case is complicated by the fact that the proceedings were held under the provisions of section 77 of the Bankruptcy Act, inasmuch as the Florida East Coast Railway was in receivership. The St. Joe Paper Co. was also an applicant for acquisition of control and obtained the approval of the Commission. The St. Joe Paper Co. along with the Seaboard Air Line Railroad, the Southern Railway and the estate of Alfred I. du Pont were holders of the debtor's first and refunding mortgage 5 percent bonds. They jointly presented the plan providing for the internal reorganization of the debtor as an independently operated railroad. The Atlantic Coast Line was at a disadvantage as an unsecured creditor. However, in the earlier proceedings between 1950-53 the ICC voted against the St. Joe Paper Co. getting control and favored giving control to the Atlantic Coast Line. An appeal to set aside the Commission's action was finally made to the Supreme Court in 1954 and resulted in setting aside the Commission's decision. It is interesting to note that subsequent to the Commission's 1958 decision that the present arrangement has been subject to severe criticism. On September 20, 1960, a Miami attorney claiming to represent about 50 minority bondholders of the bankrupt road pointed out that the Florida East Coast could not operate profitably as an independent road in one State and that the reorganization case should be reopened with a view to making it a part of the Atlantic Coast Line or the Seaboard Air Line system. The reorganization plan is scheduled to be completed January 1, providing for return to independent management.

(f) Norfolk & Western-Virginian merger (307 ICC 401 (1959)).— A very significant and little opposed merger was that of the Norfolk & Western and Virginian approved by the Commission in October 1959.

For a period of time there was some opposition on the part of the Railway Labor Executives' Association and 36 businessmen of Princeton, W. Va., a terminal on the Virginian Railway. Later both withdrew their opposition. There was persistent opposition from the city of Norfolk and the Portsmouth Freight Traffic Commission. The application was supported by numerous localities along both railroads, a number of chambers of commerce, governinent bodies, and shippers. The Commission in approving the merger was impressed by the operating advantages which it offered. There was duplication of terminal facilities at certain points, most important of which were Roanoke, but the coal field areas reached by the two roads were different and, therefore, complementary in operation as a single system. The Virginian had been unable to develop westbound merchandise traffic and its westbound coal traffic was essentially a short-haul movement to connections. Its traffic pattern was, therefore, very unsatisfactory. The two roads transverse three mountain ranges over two of which the Virginian had better eastbound grades and over one the Norfolk & Western has a better eastbound grade for the movement of heavy train loads of coal to the eastern seaboard.

The consolidation will make possible the use of the more favorable grades, and, thereby reduce costs of moving coal. The consolidation of the yards at Roanoke will permit the abandonment of many duplicating facilities and expensive practices. Other benefits are expected

to include better service to the coal industry, to the merchandisers especially those located on the Virginian who will now have access to the special equipment of the Norfolk & Western, private industry located on both lines and more stable employment. It was pointed out that the merger would probably have the effect of preserving rail service on the Virginian. Based on the 1957 traffic the committee of the Norfolk & Western which prepared the analysis estimated that the annual savings would exceed $12 million a year.

(g) Erie-Lackawanna merger (F.D. 20707) (1960).-A recent and very significant merger was effected by the combination of the Erie Railroad Co. with the Delaware, Lackawanna & Western Railroad Co. There was opposition of some of the stockholders of the Lackawanna feeling that they would not receive adequate compensation for their stockholdings. Several railroads intervened and stressed the importance of preserving joint routes, interchange arrangements and switching practices. In addition to these restrictions the New York Central requested the preservation of the identity of points on the Lackawanna in the making of joint rates and in the publication of tariffs. Very strong opposition came from the Railway Labor Executives' Association which insisted that section 5(2) (f) should be interpreted to require compensation in lieu of employment. Their appeal to the court in regard to this matter was discussed previously. The Commission was impressed by the improved operating conditions which the merger would make possible. It is interesting to note that the railroads which intervened recognized the operating advantages which would result but for their own protection insisted upon the restrictions as justified. The Commission in its decision rejected the contention of the New York Central in regard to retention of the identity of points on the Lackawanna for the purpose of tariff construction but supported the examiner's recommendations that the other restrictions requested by the carriers be approved.

These requirements include:

(1) Upon consummation of the merger, the Erie-Lackawanna Railroad shall maintain and keep open all routes and channels of trade via existing junctions and gateways, unless and until otherwise authorized by the Commission.

(2) The present neutrality of handling traffic inbound and outbound by the Delaware, Lackawanna, and Western Railroad Co. shall be continued so as to permit equal opportunity for service to and from all lines reaching the rails of that carrier, without discrimination as to routing or movement of traffic and without discrimination in the arrangement of schedules or otherwise.

(3) The present traffic and operating relationships existing between the Delaware, Lackawanna, and Western Railroad Co., on the one hand, and all lines connecting with its tracks, on the other, shall be continued insofar as such matters are within the control of the Erie-Lackawanna Railroad Co.

(4) The Erie-Lackawanna Railroad Co. shall accept, handle, and deliver all cars inbound and outbound, loaded and empty, without discrimination in promptness or frequency of service as between cars destined to or received from competing carriers, and irrespective of destination or route of movement.

(5) The Erie-Lackawanna Railroad Co. shall not do anything to restrain or curtail the right of industries now located on the Delaware, Lackawanna, and Western Railroad Co. to route traffic over any or all existing routes and gateways.

(6) Any party or any person having an interest in the subject matter may at any future time make application for such modification of the above conditions, or any of them, as may be required in the public interest, and jurisdiction will be retained to reopen the proceeding on our own motion for the same purpose. The Commission pointed out that these restrictions had adequate precedent in prior decisions under section 5.54

(h.) Merger of Chicago Northwestern with Minneapolis & St. Louis (F.D. 21115 (1960)).—This merger was brought about by an unusual procedure of acquisition of the assets of the Minneapolis & St. Louis by the Chicago & Northwestern which was covered by the issuance of bonds not to exceed $17,441,600 at 6 percent by 25-year first mortgage bonds distributed pro rata to Minneapolis & St. Louis Railway Co. shareholders at the rate of $25 in principal amount of bonds for each share of stock and by the payment of $3,488,320 in cash. The property rights acquired include motor carrier operations of the Minneapolis & St. Louis which will permit an extension of the piggyback service of the Chicago & Northwestern, in which service it has been a pioneer.

In this instance there was no opposition to the application. With the completion of the acquisition this year savings are anticipated of $12,800 a day with minimum annual savings of over $3 million. The combined road will be operated entirely as a unit.

3. Lack of adequate incentive

In explaining the fact of little progress toward consolidation during the 40 long years of hoping in that direction, most reviewers have emphasized the obstacles which have been set forth in parts 1 and 2 above. However, this inquiry has led us to question this and to feel that the lack of adequate incentive has been the primary factor. Of course, the obstacles and objections recited above have been deterrents to initiative. Insofar as the entire record has been reviewed, and it is a very large one, the point stands out that the railroad industry has not had a strong interest in consolidation since the provision was inserted in the Transportation Act of 1920. The revival of activity in the past 3 to 4 years indicates the beginning of interest on the part of at least important segments of the industry.

Why has there been this lack of incentive? As pointed out previously, the railroads had ceased to be a growth industry by the time the consolidation program was launched. The leading systems were well established and what added mileage they desired to control they set about to obtain through section 5(a) which until 1933 was outside the consolidation plan. There was, as we have seen, considerable activity through holding companies to acquire controls of other carriers, but much of this was to prevent the formation of a fifth trunkline in accordance with the consolidation plan adopted by the ICC in 1929. Railroad managers who affirmed that consolidation would mean the integration of existing facilities without employment of substantial

Detroit, T. & I.R. Co. Control, 257 I.C.C. 455, Louisville &N.R. Co. Merger, 295 I.C.C. 457, and Norfolk & W. Ry. Co. Merger, 307 I.C.C. 401.

capital investment to revamp the facilities, and with much reason, could see little advantage from the mere fact of integrated management. Those who have thought in larger terms of consolidation and who recognize that substantial capital investment would be required to provide far-reaching economies and service advantages were naturally reluctant to risk such an investment and to go through all the problems incident to consolidation in view of the uncertainty of adequate reward, because of the growing competition of other carriers which were receiving public aid while they were strictly regulated. Furthermore, in the light of growing competitive conditions, review of the record fully justifies the fear of the industry concerning the burden to be imposed upon it by compulsion to absorb properties which could not be operated profitably as part of a combined system. The original provisions of 1920 affirmed the need of preserving the entire mileage in the balanced systems that were to be established. This was further supported by reference to preserving channels of trade_and competition. While these requirements of the act of 1920 have been set aside, there is no indication in later legislation that the abandonment of substantial mileage is recognized as a necessary aspect of revamping our national railroad system. We must recognize that it is not reasonable at this stage of the development of the various competing modes of transportation to expect or compel the absorption of mileage that no railroad wants. Until this is faced up to as being in line with the public interest there is little likelihood that we can present to the railroads an adequate incentive for widespread consolidation.

4. Opposition of labor

Organized labor in the railroad industry, fearing the loss of jobs because of consolidation, has generally opposed the various proposals which have been made for consolidation of the railroads. There was no restrictive provision in the act of 1920 designed to protect labor, but in the amendments of 1933 and 1940 to section 5, strong protective measures were incorporated at the insistence of labor. In view of the fact that without consolidation employment on the railroads of the Nation has declined since 1920, except for temporary reversal of this trend during World War II, it is easy to understand why railroad labor has reacted as it has to proposals of consolidation. While reduction of jobs is not the direct objective of consolidation, it is bound to be a resultant of increased efficiency, unless a great expansion of traffic is contemplated. Because of the importance of general consolidation to the future health of the railroad industry by successfully meeting the competition of other modes of transportation, the longrun interests of labor would seem to be served by the accomplishment of general consolidation. However, there would be an interim of reduced employment and labor is justified in its contention that it should not be called upon to pay an undue share of the price of progress. Granting that the provision as it stands in the act of 1940, as it has been interpreted by the Commission, is a deterrent to voluntary consolidation, it would seem to be fundamentally justified. Recently in the ErieLackawanna merger case its Railway Labor Executives Association attempted to get the labor protection measure of the act of 1940, to mean the freezing of jobs rather than compensatory protection, and