Mighty Merger

Between the Hudson and the Mississippi, the Potomac and the Great Lakes lies the richest rail realm of the U. S. Through its fat fields, between its teeming towns, over and around its coal-laden mountains criss-cross some 57,000 miles of trackage (one-fifth of the nation's total) valued at ten billion dollars (almost one-half the nation's total). Three hundred lines, long & short, in this area serve 52 million people, bind together eight of the ten largest U. S. cities, with shiny roadways to the sea and world markets. For generations this empire has been a battleground wherein corporate giants fought for dominance by fair means and foul. To it last week came a truce, perhaps permanent peace, when the Interstate Commerce Commission sanctioned its partition among its four mightiest monarchs.

The I. C. C.'s action sunk another large milestone along the way to consolidation of the country's carriers into a few strong trunk-line systems. A dozen years have passed since rail mergers came to the fore as a major problem of U. S. Transportation. At least another dozen must pass before the question can be called settled. Past milestones:

1920. In the Transportation Act, Congress orders the I. C. C. to plan consolidation of its carriers "into a limited number of systems" so that "competition shall be preserved and existing routes and chan nels of trade maintained."

1921. The I. C. C. issues the Ripley plan for merging all railroads into 22 systems.

1924. The Brothers Van Sweringen propose a major consolidation of their Chesapeake & Ohio, Erie, Nickel Plate and Pere Marquette.

1926. The I. C. C. rejects the Van Sweringen merger as not in the public interest.

1929. The I. C. C. issues its final consolidation plan calling for 19 U. S. systems, of which two would be in New England, five in the East (TIME, Dec. 30. 1929).

1931. After prolonged discussion. Pennsylvania, New York Central. Baltimore & Ohio and Chesapeake & Ohio agree among themselves to divide up the Eastern territory into four systems. Under the auspices of President Hoover this fourway consolidation is submitted to the I. C. C. (TIME, Jan. 12. 1931).

The 1932 milestone last week was the I. C. C.'s approval, with modifications of the Big Four's own program. In its 1929 plan the I. C. C. had ordered a fifth East ern system to be composed of the Wabash, the Seaboard Air Line and a rag-tag-bobtail lot of small lines. Because no body advocated such a fifth trunk line, because both Wabash and Seaboard are in receivership, the I. C. C. dropped the idea and consented to a four-way division. The Seaboard was left to the South, the other lines were parcelled out among the Big Four.

Who Gets What. As sanctioned by the I. C. C., the rail map of the East, exclusive of New England, would contain the following:

Pennsylvania, with 31 1/2% of the area's total trackage, pushes out to Kansas City and Omaha, gets a new Buffalo-Detroit-Chicago-St. Louis link with Wabash. With Norfolk & Western it taps the Pocahontas coal fields, gains a new port to the South. Detroit, Toledo & Ironton forms a useful North-South connection for its main stems.

Chesapeake & Ohio, with the Van Sweringens' Nickel Plate (Buffalo-Chicago-St. Louis), Erie (Jersey City-Chicago-Cincinnati) and Pere Marquette (Buffalo-Detroit-Chicago) gets 24 1/2% of the total trackage. Instead of Lackawanna, as proposed originally by the I. C. C., it is given Lehigh Valley (New York-Buffalo) which puts its system into Manhattan's Pennsylvania Station. It also gets a branch of the Lackawanna to Oswego. Other C. & O. roads: Bessemer & Lake Erie, Wheeling & Lake Erie.

New York Central will have 23.7% of the trackage. To it is assigned Lackawanna (Jersey City-Buffalo) as a subsidiary outlet to the Lakes. It also gets Virginian (Norfolk-Charleston, W. Va.) with its tidewater terminal, its access to Southern coal fields. Rutland affords an auxiliary connection to Canada.

Baltimore & Ohio, with 20.3% trackage, reaches the Hudson River by Reading and Jersey Central. Alton gives it a Chicago-St. Louis-Kansas City link. Western Maryland affords a short-cut between Baltimore and Western Pennsylvania. Ann Arbor taps Michigan. With Lehigh & Hudson, a "bridge road," B. & O. gets around New York City, hooks up with New England. Buffalo, Rochester & Pittsburgh opens Western New York.

Divided among the Big Four as connecting lines are Lehigh & New England (a "bridge route"), Montour, Pittsburgh & West Virginia, Monongahela. Trackage rights here & there and joint terminal facilities complete the plan.

System v. System, The I. C. C.'s underlying idea was to establish rail competition not between individual lines but between systems. Thus out of New York N. Y. C. and Lackawanna, in the same system, would compete against Erie and Lehigh Valley in another system. Four-way system competition would be preserved at such important centres as Buffalo, Toledo, Chicago, Detroit, St. Louis. Cincinnati, Cleveland and Pittsburgh. Only the B. & O. would fail to get into Norfolk. No important city which now has competition between two railroads would get less under the merger plan.

P. R. R. Exiled. New England offered the stiffest problem for this Eastern merger. The I. C. C. cut the knot by excluding New England from present plans. Originally New England was to have two consolidated systems--New Haven and Boston & Maine. Pennsylvania threatened this program when it began buying into the two New England roads. Last week the I. C. C. reported that it controlled 22% of New Haven and, with New Haven, 45% of B. & M. Such penetration by Pennsylvania alarmed the five New England governors who loudly resisted its "monopolistic invasion."

Nor was the I. C. C. ready to see the Pennsylvania, already the largest system in the Eastern merger, gobble up New Haven's 2,122 miles and thus unbalance the Eastern map. Therefore the I. C. C. last week decreed that it would approve no merger application from Pennsylvania ''until that railroad either has divested itself of all stock ... in the New Haven and the Boston & Maine or has placed all such stock in the hands of independent trustees approved by us."

Engagements & Marriages. The I. C. C. ruling did not order the roads to consolidate. It simply approved their own plans to get together and share the Eastern territory. At the same time it sanctioned not only mergers which have already occurred but also proposed mergers which it has fought tooth & nail as illegal and against the public interest.

For years Pennsylvania has been engaged to Norfolk &-Western. The I. C. C. is now ready for a formal marriage. Likewise B. & O. has become the principal proprietor, with New York Central, of Reading and Jersey Central. The I. C. C. now approves their acquisition in name as well as fact.

Illicit Affairs-- Pennsylvania's holdings in Wabash and B. & O.'s in Western Maryland the I. C. C. has long viewed as violations of the anti-trust law. Both roads were ordered to cease their illicit affairs with these weaker carriers. But last week the I. C. C. gave up its fight for corporate morality, told Pennsylvania and B. & O. to take their sweethearts openly into their homes.

Eastman Dissent. Such a lax attitude by a majority of the I. C. C. produced a stinging dissent from the merger plan by Commissioner Joseph Bartlett Eastman. As the "radical" member of the Commission, Mr. Eastman delivered a long economic treatise in which he declared:

"The people are either fighting to bar the wolf from the door or struggling inside the threshold to keep his fangs from their throat. They have little time or money to spend on railroad consolidation plans. . . .

"The Van Sweringen interests were the first to start operations. By an ingenious use of intermeshed holding companies . . . and the funds of the throng who were eager in the days of maniac prosperity to invest in holding companies, they put to-together [the C. & O.] system. . . . Twice our approval was sought and twice it was refused.

"The Pennsylvania . . . with the aid of the fantastic Pennroad Corp. worked rapidly and regardless of cost acquiring without our approval the Wabash, Lehigh Valley, Detroit, Toledo & Ironton. ... In its arrogance the Pennsylvania consulted neither the commission nor the law nor public opinion.

"The Baltimore & Ohio without our approval acquired the Western Maryland and an interest in the Reading.

"The New York Central has a practically clean record of non-aggression. . . .

"The proponents of the four-system plan have proceeded with pardonable egotism as if the remainder of the country did not exist. Their plan carves a line around the Eastern territory and leaves on the other side several amputated and bleeding stumps. . . . The adoption of this plan has slaughtered the plan for the entire country which we set up in 1929."

Next? Before operating staffs can be merged and economies effected, each of the Big Four has much to do. C. & O. must arrange to buy Lehigh Valley from Pennsylvania and the closely held Bessemer & Lake Erie from U. S. Steel Corp. Pennsylvania must shuffle off its New England holdings. New York Central must persuade the Henry Huddleston Rogers estate to part with Virginian, now held for a fancy price. B. & O. must buy New York Central out of Reading and complete its ownership of Western Maryland. As each system pieces together its many parts, it must appear before the I. C. C. with an application to execute its share of the general plan.

The I. C. C.'s action served to stiffen rail bond prices, give rail stocks a gentle fillip. Pennsylvania was reported ready to bolt the merger plan rather than suffer exile from New England. Big Four executives called a meeting for this week to determine their next step. But bets were that the Depression, which had brought Pennsylvania's Atterbury, B. & O.'s Willard, New York Central's Crowley* and C. & O.'s Bernet together, would be over before every passenger coach and freight car in the East bears the name of one of their systems.

*He has since been succeeded by Frederic Ely Williamson.

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