The Chessie's Merger Master

WALTER JOSEPH TUOHY

THE Chessie kitten, the sleepy mascot that has long graced the Chesapeake & Ohio Railway's letterheads and napkins, last week was sporting a Cheshire-cat grin. In one of the biggest, bitterest railroad stock duels in history, the Chessie bested the New York Central for control of the Baltimore & Ohio. The president of the C. & O., sharp-faced, birdlike (5 ft. 6 in., 125 lbs.) Walter Tuohy, 59, announced last week that 61% of the 3,100,000 shares of B. & O. stock are now in the Chessie's paws. For Tuohy, a railroadman with the farsightedness of the falcon he looks somewhat like, the stock acquisition is but the first step in a grand design to merge the two lines into the second largest U.S. railroad (after the Pennsy). Such a merger might well lead to others and an entirely new system of Eastern railroads. Says Tuohy: "One hundred ten class one railroads are just too many."

In an industry often criticized for its lack of imagination and innovation, Tuohy has provided plenty of both ever since he became C. & O. boss in 1948. Coming from the coal business, Tuohy highballed into the Chessie with none of the one-track-tunnel vision that sometimes characterizes lifelong railroaders. When Tuohy took over, the economies of the diesel locomotive were already apparent. Since the C. & O. is the nation's largest soft-coal hauler, its old-line brass assumed that their customers would not stand for dieselization. Tuohy called in 50 coal operators, flatly told them the C. & O. would have to get diesels to continue to give them cheap coal-carting service. The coalmen were convinced, and the railroad cut its operating costs $25 million a year.

Looking down the track, Tuohy realized that to maintain the Chessie's enviable profit record (it has missed only two dividends since 1899, none under Tuohy), the line would have to diversify away from the dwindling coal industry. He put the line's business-development department at full throttle to go out and bring new industries to areas served by the C. & O. Now. some 50% of the C. & O.'s business is general merchandise, v. 22% in 1948.

Tuohy also looks off the tracks for ways of strengthening the C. & O. With the United Mine Workers and nine coal producers and haulers, the C. & O. has formed American Coal Shipping, Inc. to export coal. The railroad has gone into oil and gas; last year its wells produced revenues of $1,000,000. Tuohy even hopes some day the railroad will be permitted by law to expand into other kinds of transportation, e.g., he engineered the C. & O. purchase of $3,330,000 worth of convertible debentures in Slick Airways, Inc., an airfreight and charter carrier. If the Government ever gives railroads a go-ahead into the airlines business, the C. & O. will be ready.

Unless railroads are allowed to expand, warns Tuohy, "we can unwittingly drift toward nationalization. Railroads can't quit. If they can't be operated profitably by private enterprise, they will have to operate with federal funds." He feels that railroads should get the same Government help to support their stations and other facilities that airlines and truckers get, even though the C. & O. in a generally poor year for railroads is doing well. The C. & O. (aided by the fact that only 3% of its revenue comes from passengers) last year earned $5.15 a share (down only 45-c- from 1959), paid its usual $4 dividend.

Tuohy, the son of a Chicago police sergeant, was born and raised on Chicago's South Side; he held a series of odd jobs while attending De Paul University night school from 1918 to 1929, when he received a law degree. He went into the coal business, became president of Chicago's Globe Coal Co. in 1939. Brought to the C. & O. by the late Robert R. Young in 1943 as a vice president, he became president five years later. After Young sold out to Cyrus Eaton, Khrushchev's favorite capitalist, Eaton was so impressed with Tuohy that he has given him a free rein.

In his spare time, Tuohy likes to keep a hand on his fiddle and bow (another amateur fiddler: the New York, New Haven & Hartford's George Alpert). When Tuohy and his wife Mary, his grade-school sweetheart, vacation at the C. & O.'s plush Greenbrier Hotel at White Sulphur Springs, W. Va., he sometimes sits in with the orchestra.

Tuohy is convinced that the merger will also put the B. & O. back on its feet (last year it earned only 8-c- per share v. $4.87 in 1959), create a strong competitor to the Pennsy. As for the New York Central, thus far unhappily sidetracked, Tuohy argues simply that the time is not yet right to make a three-way deal. With the B. & O. in hand. Tuohy can now write his own timetable, and many a railroadman suspects that the time will be right when Tuohy figures he can end up running the New York Central too.

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