Southern Pacific to Be Sold but Bidding War Continues

CHICAGO —  Santa Fe Southern Pacific Corp. has agreed to sell its Southern Pacific railroad to Rio Grande Industries for about $1.8 billion, but the deal likely won’t end the bitter bidding war for the rail line, officials said today.

Rio Grande, which operates the Denver and Rio Grande Railroad between Kansas City, Mo., and Colorado and Utah, said it would pay the $1.8 billion mostly in cash for the 13,000-mile Southern Pacific.

But Santa Fe’s largest stockholder, Henley Group Inc., called the deal “an unwise decision . . . in what amounts to a bankruptcy auction.”

Henley owns 14.7% of Santa Fe Southern Pacific stock. Its bid to buy the entire corporation for $9.8 billion was rejected earlier this month.

Henley, based in La Jolla, Calif., said in a statement that the sale to Rio Grande “could have far-reaching consequences,” but the company refused to elaborate.

Kansas City Southern Industries Inc., another bidder for the Southern Pacific part of the corporation, said it will continue its efforts to take control of the rail line despite the purchase agreement with Rio Grande.

Subject to ICC Approval

The agreement is subject to approval by the Interstate Commerce Commission, which, for antitrust reasons, had ordered Santa Fe Southern Pacific to sell one of its two railroads--the Southern Pacific or the Atchison, Topeka and Santa Fe Railway Co.

Kansas City Southern, while refusing to divulge the terms of its bid, said it was superior to Rio Grande’s.

“Our bid for the Southern Pacific is substantially higher, has fewer regulatory problems, is financed and best preserves competition among Western railroads,” Kansas City Southern President Landon H. Rowland said.

The sale would give the Denver-based Rio Grande access to Southern Pacific markets in the Midwest, Southwest and Pacific Coast regions.