CSX SWEETENS POT IN BID TO BUY CONRAIL AND HOLD OFF NORFOLK SOUTHERN.(BUSINESS)

Byline: ALIAH D. WRIGHT Associated Press

PHILADELPHIA -- The fight for control of a once-comatose rail freight network in the Northeast shows no signs of letting up.

CSX Corp., its stock continuing to sink after making an $8.4 billion bid for Conrail Inc., agreed Wednesday to pour more cash into its offer. Norfolk Southern Corp. said it is not dropping its richer, rival $9 billion bid, which it now will take directly to Conrail shareholders.

Control over freight lines in the heavily populated eastern half of the country is at stake. A purchase of Conrail by either partner would create the No. 3 freight carrier in the United States and continue the trend toward the creation of even bigger railroads.

With the sweetened cash-and-stock bid in hand, Conrail reaffirmed its Oct. 15 agreement to merge with CSX, rejecting the all-cash offer from Norfolk Southern. The new CSX bid is worth about $8.4 billion, based on Tuesday's closing share price, the same value as its earlier bid when first announced.

``The way it stood, Norfolk clearly had the better deal for shareholders, and that's why CSX has decided to sweeten the deal somewhat,'' said Thom Brown, managing director of the money management firm Rutherford, Brown & Catherwood.

``But I'm not sure they've sweetened it enough to pull this off.''

Specifically, CSX raised the cash portion of its offer to $110 a share for 40 percent of Conrail stock, up about 19 percent from the $92.50 in its initial takeover agreement. It, however, left unchanged terms to buy the rest of Conrail's shares for CSX stock. CSX shares have fallen more than 11 percent since the deal was announced.

The move didn't please some Conrail shareholders, according to Renee Johansen, a transportation analyst with Wheat First Butcher Singer, a Richmond, Va.-based investment banking firm.

During an analysts' conference call Wednesday with officials of CSX and Conrail, investment firms that represent some of Conrail's shareholders relayed client gripes that ``they can't believe that the board agreed to this,'' Johansen said.

In trading after the latest round of announcements, Conrail rose $1.50 in afternoon trading to $93.75 a share on the New York Stock Exchange, where CSX was down $1 at $43 and Norfolk Southern was down $1.50 cents at $87.50 a share.

Norfolk Southern said it intends to make good on a threat to take its offer directly to Conrail's shareholders.

``It's a better offer -- certainly we're taking it to the shareholders,'' said Norfolk Southern spokesman Bob Fort.

The battle for Conrail follows two other massive railroad mergers during the past two years in a capital-intensive industry where growth often means buying new track, sometimes entire companies.

Last year, Burlington Northern bought Santa Fe. Union Pacific bought Southern Pacific earlier this year.

``It is clear to me that CSX and Conrail intend to continue their joint efforts to railroad Conrail shareholders into accepting a proposal significantly inferior to Norfolk Southern's $100-per-share all-cash tender offer,'' said Norfolk Southern chairman David R. Goode.