Operation Thunderbolt

Sitting on the sun deck off his 34th floor office in Cleveland's Terminal Tower two weeks ago, the chief executive of the Chesapeake & Ohio Railway gasped as an unexpected puff of wind caught the papers at his side and whisked them over the parapet. Walter J. Tuohy quickly enlisted a financial vice president and four aides, and all set out on a frantic search for the papers. For 21 hours, they scrambled over rooftops, peered out on lower ledges and tramped the rush-hour streets below. No luck.

Tuohy's consternation was understandable. The papers contained facts and figures about one of the best-kept business secrets in years. The project was even given code names--Operation Thunderbolt and Big Deal--to preserve secrecy. During ten tense months of negotiation, the executives involved scratched out details in longhand so that not even confidential secretaries would know what was going on. Last week the secret was out--and it stunned the railroad industry, Wall Street and even Washington. Tuohy's C. & O. and the Norfolk & Western Railway announced that they planned not only to merge with each other but to take in five smaller eastern railroads as satellites. The consolidation would produce the greatest passenger and freight colossus in U.S. history.

Balanced Giants. The system--no name for it has yet been picked--would link 20 states and two Canadian provinces from Portland, Me., to Omaha, from Montreal to Winston-Salem, N.C., over 26,460 miles of track; it would boast annual revenues of $1.822 billion a year. The new road would be a shade larger than the pending New York Central-Pennsylvania combine (23,271 track miles, $1.806 billion-a-year revenues) but would have slightly less in total assets ($5.9 billion v. the Pennsy Central's $6 billion).

The two merging railroads, which are concentrated in the northeast and midwest, plan to take in the Erie-Lackawanna, the Boston & Maine, the Delaware & Hudson, the Reading and the Central Railroad of New Jersey. Both prospering, the roads aim not only at giving the East two competitively balanced giant rail networks (each serving precisely 115 cities of more than 50,000 population) but also at rescuing from possible oblivion the four faltering, largely commuter lines (only the Delaware & Hudson is currently profitable). Says Tuohy: "We concluded that a merger that would take care of the indigent railroads would be most constructive."

Prickly Provisos. Tuohy, the C. & O.'s vice chairman, and Herman H. Pevler, the Norfolk & Western's president, attached some prickly provisos to their willingness to take in the indigents, notably that some layer of Government permanently pick up the tab for commuter losses on three of them. Beyond that, the merger must surmount threatened minority-stockholder suits and possible antitrust objections from the Department of Justice, then win approval not only of the five little lines (most of which consider the offered price too low) but also of the Interstate Commerce Commission, whose deliberation may well take three years. The Pennsy and New York Central, though so far insisting that the proposed union only makes the expected ICC approval of their own merger more urgent than ever, may yet file objections. They stand to lose traffic to the other giant.

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