The more I read about (past) railroad mergers, the more I start to wonder if railroad take-overs is a more accurate description. Perhaps giving validation to Michael Sol’s contention that (modern era) mergers “didn’t work”, it seems that very few were mergers of equals, well thought out and executed. A case in point, is the Erie-Lackawanna merger. The Lackawanna, (1/3 of the merger equation), seemed to be a better run railroad than the Erie(2/3 of the merger equation). But Erie management ran the show, by virtue of being the “bigger” partner. It’s hard to imagine any merger coming out of Omaha as being much more even-handed than a pac-man game.
Considering all the negative press that railroad mergers have received over the years, were there any that were of railroads merging on equal footing, well planned, well executed, and able to deliver all the advantages that merger proponents had promised?
It’s been written in a number of books that the Erie Lackawanna merger was a case of a drowning man reaching out for help from a man in a sinking boat.
Well, the business press gets it right at least part of the time – if a takeover is hostile that’s what they call it; if it’s non-hostile it’s still a “takeover bid” followed by a “takeover.” Unless it’s a “merger.”
It’s best to look beyond the terms. No matter how friendly, two corporations of any kind that merge have options: (1) - Company A reimburses co. B shareholders at a price which (usually, we hope) is a little more than the stock-market price of co. B before co. B’s stock ceases to exist as a marketable item (this is how Procter & Gamble bought out Gillette two years ago). Only if If B shareholders face a buyout offer that is too low, and they have no “white knight” or other entity that might give them a fair price for their shares, then that is certainly a condition for a hostile takeover if the
That’s a pretty good description of a lot of the mergers in the 60’s and perhaps early 70’s. It’s odd, that the E-L merger seemed to forcast all the problems on the horizon for future mergers, yet few seemed to pay attention. Erie and Lackawanna had problems managing two different ways of doing business. That caused problems and meltdowns. UP and SP, on the other hand…
That was probably the one that fared the best. It was a natural extension of territory for the N&W. There were some problems, but nothing like most of the other mergers. The key was the N&W had a solid traffic/revenue base to begin with which was not hurt by the merger. It also didn’t hurt that passenger service on all 3 roads was rather limited at the time of the merger.
The whole merger issue is very interesting. A number of the early mergers were parallel mergers in which costs were hopefully to be reduced. How many of these were successful? Erie Lackawanna is one of those. We just dont know if the merger delayed the inevitable or not…all we know is EL ceased to exist. Poof…gone.
By the late 70/early 80’s the mergers were moving to another level, that of increasing markets. I think NW got it right with the WAB/NKP merger. Stratigically, they realized that they had to expand out of the coal business. The new NW created new markets and services.
Ditto for NW/Southern. New services and markets. More efficient routings. I know there will be those that question the efficiencies. But, do you think NW or Southern would be as strong as independent carriers today?
I tend to agree with Al that hopefully this is it for mergers, but realistically can we expect the railroads to end at the Mississippi River? Someone will make the first move.
I’ll agree, that this was probably the one that fared the best. That might have been because the roads were in fairly good financial shape (excellent, in the case of N&W). That wasn’t a merger of last ditch necesity. Still, it wasn’t as much a merger, as such, as a take-over of the other roads by N&W.
Are you saying that the E-L merger was successful? or, that it just delayed the inevitable? I’m almost through Erie Lackawanna, Death of an American Railroad by H. Roger Grant. The picture he paints, is that Lackawanna was a better run company, but Erie was the bigger partner in the merger. Therefore, Erie people and practices were maintained, and none of the company-saving benefits that were expected seems to have come from the merger.
My father worked for the Pennsylvania RR about the time that talks were begun with the New York Central. He always bemoaned the fact that the Pennsy didn’t pursue a merger with the Santa Fe, which would have created a RR that served the five largest markets in the country, rather than the NYC merger, which meant that two of the largest markets in the country were served twice.
Was EL merger successful? Depends how you define it. Ultimately…no. It just wasnt going to be profitable based on what was happening in the Northeast at the time. I do think it delayed the inevitable. Now do you consider that success? It was for those employees (and families).
I read Grant’s book and found it interesting, one of the best I have read of the history books on railroads. I liked the time that it covered from the 30’s on.
You might want to read or re-read the excellent article in the March, 2005 Trains issue (That 70’s Issue, which is becoming my favorite all time Trains issue). With everything else in that issue, there is an excellent article written by Larry DeYoung. Not only is it well written, but the photography is spectacular.
EL is a railroad that intrigues me…30 years after it was gone. All I have to do is look at the Bob Wilt photo on pages 32/33 of SD45’s pulling UPS and pigs in the autumn light and just wonder what might have been.
Don’t forget, on the Erie Lackawanna merger (clearly a subject of interest, per my screen name), Hurricane Agnes dealt the death blow to the EL. Right up to the last few hours before Conrail, there was serious consideration to keeping the EL out of Conrail too.
Now, I’m not saying the merger was a success, but I think that those two events, Agnes in 1972, and the decision to become part of Conrail in 1976, are what mark it fairly, or unfairly, as a failure.
Had Erie Lackawanna’s labor come to terms with Chessie System, who knows what would have happened?
Put in that type of context, I see what you mean. Had the (seemingly better) Lackawanna management run the show after the merger, things may have been different, but the end result probably the same.
What is your deciding factor in determining if something was a merger or a take-over? Can a large company “merge” with a smaller company? Are you basing your term “stronger” on financial strength?
In my mind, it is a merger if both companies agree to the joining. It is a take-over if one company really has no choice in the matter (either because of a buyout of shares, or because the company is in such financial straits that its only other alternative is to go bankrupt). Another possibility would be a “buy-out”, which isn’t necessarily a merger or a take-over.
To me a take over seemed to occur when the more powerful railroad in the merger simply took control of the weaker railroad in the merger. For example: Erie over Lackawanna, PRR over NYC, UP over everybody. (What’s the German phrase? “UP uber alles”?[}:)])