Penn-Central Merger and N & W Inclusion Cases

RESPONDENT: Penn-Central Merger Cases
LOCATION: Congress

DECIDED BY: Warren Court (1967-1969)

CITATION: 389 US 486 (1968)
ARGUED: Dec 04, 1967
DECIDED: Jan 15, 1968

Facts of the case


Media for Penn-Central Merger and N & W Inclusion Cases

Audio Transcription for Oral Argument - December 04, 1967 in Penn-Central Merger and N & W Inclusion Cases

Earl Warren:

Number 778, 779, 830, 831, 832, 833, 834, 835 and 836, the Penn-Central Merger and N & W Inclusion Cases.

Mr. Trienens.

Howard J. Trienens:

Mr. Chief Justice and may it please the Court.

I've been assigned 50 minutes and I hope to save a few moments for reply.

Last term, the Court held the Penn-Central merger should not be consummated until the ultimate thing, the three railroads had -- have been determined.

The Court stated that this meant a decision on the inclusion of these three railroads in a major system prior to the consummation of Penn-Central merger.

But the underlying reason for that holding was the economic fact that Penn-Central merger will destroy three other railroads, the Erie-Lackawanna, Delaware & Hudson, Boston & Maine.

The Commission expressly found that this would happen and since the case was before this Court, that finding has not been modified and has not been challenged by any party.

Now, the Commission has held that Penn-Central can be consummated and why, because the Commission has issued an order in the N & W Inclusion Case.

The Commission's order directs Norfolk & Western to pay out some $130 million in stock and cash to acquire the equity ownership, not the properties but the equity ownership of these three railroads and to include them as separate subsidiary corporations in the N & W system.

Now the reason for the form of this order, I'm giving Erie as an example, is that N & W is required to buy the stock of Erie.

It's not merged and it's not integrated completely because merger was out of the question.As the Commission found, merger was nowhere in sight.

The reason it's nowhere in sight is that Erie had $350 million of debt.

Everybody recognized that that made merger out of question, and the reason of course was that Erie bondholders who are appellants in this Court refused to do anything to modify that bond for that debt and they said they'd rather have Erie go bankrupt than modify the debt.

And so, we have these corporations.

N & W acquires their stock by going into N & W Subsidiary Corporation, separate corporations and if they fail to meet their fixed charges individually, they can go into bankruptcy.

It's essential to us -- compare what this order does for Erie stockholders but what it does for the Erie Corporation upon whom the Commission relies to provide necessary transportation service.

Now why is it that N & W is required to buy the stock of Erie for example.

Here is the public interest finding and I think it's critical to read this because the District Court completely ignored its existence.

I can read the District Court opinion through and never know this finding occurred but this is why in the public interest, N & W was required to buy this stock, because it included -- if Erie is included in N & W by way of control, control meaning we buy the stock.

These roads would be able to continue to provide adequate transportation service and why is that?

Because and only because of this express finding, the normal earnings of each petitioner, the normal earnings of each petitioner after inclusion will be sufficient to meet their fixed charges.

These normal earnings concept and these normal earnings findings are critical not only to the price we had to pay.

Price was geared to these normal earnings.

But it was also critical and underlies the Commission's sole public interest finding as to why N & W had to acquire the stock.

And so I begin by describing how the Commission found and arrived at the so-called normal earnings of Erie railroad.

Erie had a deficit of $8 million in 1964.

It had deficits every year for years prior there to.

1965 and 1966, Erie reported net income averaging $5 million, deficits and net income 1965-1966.

The Commission took that $5 million of net income in those two years.