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Rail News: M&A

NS, Watco seek STB approval for smaller-scale Michigan transaction

Norfolk Southern Corp. and the Watco Cos. Inc. are giving it another try to gain Surface Transportation Board (STB) approval for a line lease/operation deal in Michigan. But this time, the transaction is on a much smaller scale.

NS and Watco are seeking an exemption from the STB that would enable Watco to lease the Class I’s lines in Michigan and Indiana totaling 122.9 miles, and obtain incidental trackage rights for a 0.4-mile line in Michigan. Watco would form subsidiary Grand Elk Railroad L.L.C. (GER) as the lines’ operator.

This proposed deal involves some of the same lines NS and Watco had planned to incorporate into their Michigan Central Railway L.L.C. joint venture, which was introduced last year, but denied by the STB in December 2007.

The GER transaction is “significantly more routine” than the Michigan Central proposal because the GER deal involves only a portion of the previously involved lines; GER would be a wholly owned subsidiary of Watco, unlike the previously proposed Watco/NS joint venture; the Class I would have no ownership, management or other interest in GER, and wouldn’t share in the short line’s profits; and GER would be able to interchange with all railroads it physically connects with and NS would receive no compensation for carloads interchanged with other carriers, Watco and NS officials said in their STB filing.

NS and Watco plan to lease certain lines in Michigan to GER, which will be better suited to work with local customers and communities to rebuild the lines’ traffic, the officials said. The parties believe the proposed transaction will reverse what’s been a significant decline in carloadings on the lines.

Contact Progressive Railroading editorial staff.

More News from 11/14/2008