Railroads: Birth of the Penn Central

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For nearly a century the first and third largest U.S. railroads—the Pennsylvania and the New York Central—have battled each other with wary, and sometimes hostile, respect. Last week, in a dramatic communique carefully withheld until the New York Stock Exchange had closed for the weekend, the boards of directors of the two longtime rivals announced plans to merge them into one giant enterprise: the Pennsylvania New York Central Transportation Co.

Out of the proposed merger would come a massive rail network with 20,372 miles of track crisscrossing the big industrial areas from Boston to St. Louis. With assets of $4.2 billion and combined annual revenue of $1.5 billion or more, the new Penn Central line would tower far above any other U.S. railroad and with its subsidiaries would rank as the 13th largest corporation in the country.

As the bigger and financially stronger of the two merging lines, the Pennsy would dominate the new road. Under the terms agreed upon by the two boards, each Central share (selling at 20⅞ at week's end) would be worth 1.3 shares in the Penn Central, while each Pennsy share (18⅛) would be worth only one new share. But with twice as many Pennsy shares presently outstanding, Pennsylvania stockholders would wind up with 60.8% of the new company. In addition, Pennsy directors will nominate the chairman-chief executive officer and one vice chair man of the merged line. For top man their choice seems likely to fall on Pennsy Chairman James M. Symes (pronounced Sims), 64, a railroad man all his life. His directors are pressing him to postpone his retirement in order to launch the new line. Central directors will name the president-chief administrative officer of the new road plus a second vice chairman. As a gesture to the Pennsy, Central directors seem ready to tap as president Allen Greenough, 56, currently president of the Pennsylvania. Central President Alfred Perlman, 59, a tough operating man but less effective in administration and not too highly regarded at the Pennsy, seems slated for a vice chairmanship.

Up from the Mohawk. Forcing this elaborate treaty between two old combatants was one overriding consideration: the increasingly parlous economics of Eastern railroading. The Pennsy, which as late as 1955 reported net profits of $41 million, showed a deficit of $2.7 million in the first eleven months of last year. The Central, which netted $52 million in 1955, lost $15.9 million in the first eleven months of 1961. By merging, the two roads hope to save as much as $150 million a year in operating costs. They can eliminate hundreds of miles of side-by-side track, cut back to one terminal in cities where they are now rivals and do away with duplicating jobs, rolling stock and maintenance facilities.

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