FINANCE DOCKET No. 146921 CHESAPEAKE & OHIO RAILWAY COMPANY Submitted April 19, 1945. Decided June 5, 1945 1. Purchase by Chesapeake & Ohio Railway Company of the properties of Norfolk Terminal & Transportation Company, approved and authorized. Conditions prescribed. 2. Authority granted to Chesapeake & Ohio Railway Company to assume obligation and liability, as primary obligor, in respect of not exceeding $500,000 of Norfolk Terminal & Transportation Company first-mortgage 5-percent bonds. 3. Acquisition by Alleghany Corporation of control, through the ownership of stock, of Chesapeake & Ohio Railway Company, New York, Chicago & St. Louis Railroad Company, and Pere Marquette Railway Company, and their subsidiaries and affiliates, approved and authorized. Conditions prescribed. 4. Alleghany Corporation subjected to the provisions of Section 20 (1) to (10), inclusive, and Section 20a (2) to (11), inclusive, of the Interstate Commerce Act. 5. Nomination of trustees, and trust agreements covering deposit of specified capital stock, approved. 6. Jurisdiction retained to make such further order or orders as hereafter may be necessary or appropriate. 7. Proceeding in No. 29085, In Re Alleghany Corporation Control, discontinued. Joseph J. Doran and Harry L. Underwood for the Commission. George S. Leisure, Henry H. Bond, Granville Whittelsey, Jr., Robert W. Purcell, and R. Granville Curry for respondents and applicants, Theodore H. Burgess, Randolph F. Fulmer, Charles W. Sellers, Glenn C. Wilbur and Joseph J. Laub for respondents, and David Teitelbaum and George H. Gardner for applicants. Martin H. Miller, John T. Corbett, and Philip S. Peyser for inter veners. Albert Boggess and Frank F. Vesper for Department of Justice, Anti-Trust Division. S. Wallace Dempsey for himself. Howard D. McGeorge for himself and New York, Chicago & St. Louis Railroad Preferred Stockholders Protective Committee. 1 This report also includes No. 29085, In Re Alleghany Corporation Control, which was transferred from the docket of the Commission to division 4 for consideration and disposition. 261 I. C. C. REPORT OF THE COMMISSION DIVISION 4, COMMISSIONERS PORTER, MAHAFFIE, AND MILLER BY DIVISION 4: The Chesapeake and Ohio Railway Company (Chesapeake & Ohio) on September 2, 1944, filed an application, under section 5 (2) of the act, for approval and authorization of the acquisition by it of the properties of Norfolk Terminal & Transportation Company (Terminal Company) and under section 20 (a) of the act for authority to assume, as primary obligor, obligation and liability in respect to the payment of the principal of, and interest upon, $500,000, principal amount, of first-mortgage 5-percent gold bonds of the Terminal Company. Alleghany Corporation (Alleghany) filed a supplemental application on September 5, 1944, joining in the application of the Chesapeake & Ohio and seeking approval and authorization under section 5 (2) of the act of control by it, through the Chesapeake & Ohio, of the properties of the Terminal Company, and asked approval of the continuance of Alleghany's relationship with the carriers controlled by it, directly or indirectly, including the Chesapeake & Ohio, The New York, Chicago & St. Louis Railroad Company (Nickel Plate), and the Pere Marquette Railway Company (Pere Marquette). A hearing has been held. The Brotherhood of Railroad Trainmen and The Brotherhood of Locomotive Engineers intervened in support of the applications. No one appeared in opposition. By proposed report filed March 6, 1945, in this proceeding and in the proceeding in No. 29085, in Re Alleghany Corp. Control, it was recommended that the Commission enter an order or orders (1) requiring Alleghany Corporation, Allan P. Kirby, and Robert R. Young, and the Chesapeake & Ohio and its officers and directors to take such steps as may be necessary in the opinion of the Commission to prevent a continuance of an alleged violation of the provisions of section 5 (4) of the Interstate Commerce Act in continuing to maintain control of the Chesapeake & Ohio, the Nickel Plate, and the Pere Marquette by Alleghany and the individual respondents, Young and Kirby, which it was recommended the Commission should find had been acquired or accomplished or effectuated in a common interest, in violation of those provisions, (2) approving and authorizing the purchase by the Chesapeake & Ohio of the properties of the Terminal Company, (3) authorizing the assumption by the Chesapeake & Ohio of obligation and liability as primary obligor in respect of not exceeding $500,000 of first-mortgage bonds of the Terminal Company, and (4) dismissing the application of Alleghany for an order approving and authorizing the acquisition by it of control of the Terminal Company through control of the Chesapeake & Ohio. Upon petition of Alleghany filed on April 13, 1945, the proceeding in the finance docket was reopened by order of April 19, 1945, for the sole purpose of receiving into the record an affidavit of Young and three exhibits accompanying the affidavit. The affidavit of Young, which includes as an exhibit proposals signed by Kirby, with other exhibits embodies proposals by Alleghany made with a view to possible disposition of the proceedings in the two dockets "without further litigation" and in lieu of exceptions to the original proposed report. It is the intention of Alleghany to acquire or dispose of securities of other corporations from time to time, including securities of carriers subject to regulation under the Interstate Commerce Act. It is, however, Alleghany's intention to limit its control of such carriers to the Chesapeake & Ohio and its affiliated carriers so long as such control continues and subject to the right of Alleghany to apply for control of such other carrier or carriers as it may consider to be in the public interest. In line with these policies Alleghany is prepared to accept an order in this proceeding authorizing continuance of its control of the Chesapeake & Ohio and its affiliated carriers, and containing the following conditions which shall be effective only so long as such control continues: (1) That Alleghany shall be subject to such provisions of the act mentioned in section 5 (3) thereof as we shall deem appropriate and designate in our order thereunder; (2) that Alleghany and the Chesapeake & Ohio shall deposit their respective holdings of stock of The Pittston Company with the Empire Trust Company of New York as independent voting trustee; and (3) that Alleghany and the Chesapeake & Ohio shall deposit with the Chase National Bank of the city of New York as independent voting trustee all voting stocks of carrier corporations subject to regulation under the Interstate Commerce Act, not at present affiliated with the Chesapeake & Ohio system, whether now owned or hereafter acquired by either of them, except Alleghany's holdings of the stock of the Missouri Pacific Railroad Company which is now in reorganization under section 77 of the Bankruptcy Act, as amended. (Should Alleghany acquire any voting stock at the conclusion of the court proceedings, such stock would be covered by the proposals made in the petition of April 13, 1945.) Copies of the proposed agreements under which the stocks would be vested in the voting trustees were included in the petition and filled with the affidavit. Under one of the agreements there would be assigned, transferred, and delivered to the Empire Trust Company, as trustee, voting stocks of the Pittston Company as follows: (a) By Alleghany, 248,120 shares of common and 29,190 shares of preferred; (b) by the Chesapeake & Ohio, 190,625 shares of common and 22,426817 shares of preferred. Under the other agreement the Chesapeake & Ohio would assign, transfer, and deliver to the Chase National Bank of the city of New York, as trustee, 46,700 shares of common stock and 259 shares of 5-percent preferred stock of Erie Railroad Company (Erie), and Alleghany and the Chesapeake & Ohio would agree promptly, upon receipt thereof, to assign, transfer, and deliver to the bank as trustee all voting stocks of carriers subject to the Interstate Commerce Act which it may hereafter acquire (excepting stocks of carriers at present affiliated with the Chesapeake & Ohio) unless acquisition thereof is expressly approved by us, or unless we shall otherwise order. Each agreement provides, among other things, (a) that the trustee shall be entitled independently to vote upon the election of directors and upon all other matters submitted to stockholders, except that in respect of any matter, other than the election of directors, required by law to be submitted to stockholders the trustee shall, if so directed, vote or act upon the shares deposited as the respective depositors thereof shall direct, shares represented by certificates pledged by Alleghany to be voted as directed by the pledgee in the event of default; (b) that the trustee shall release any shares of stock from the agreement (1) upon the sale thereof to any person not affiliated with Alleghany, an "affiliated person" being defined as any officer, director, or employee of Alleghany or any firm or corporation in which Alleghany has any ownership interest directly or indirectly, (2) upon ratable distribution of such shares to any class or classes of its stockholders, or (3) upon our order approving such release; and (c) that the trust agreement may be modified or amended in any respect with our approval. Provision is made in each agreement for the issue and transfer of voting-trust certificates and for the termination of the trust upon certification by the depositors that we have found that Alleghany no longer controls the Chesapeake & Ohio and its affiliated carriers, accompanied by a copy of the document evidencing such finding. The trust agreement is to continue for a period of 10 years unless sooner terminated as provided in the agreement. The essence of the proposal is that Alleghany limit its control of carriers subject to regulation under the Interstate Commerce Act to the Chesapeake & Ohio, the Nickel Plate, the Pere Marquette and, subject to the existing voting trust, The Wheeling & Lake Erie Railway, together with other subsidiaries and affiliated carrier corporations already a part of the transportation system known generally as the Chesapeake & Ohio lines. Alleghany does not at present own stock of any carrier corporation outside this system except stocks of the Missouri Pacific Railroad Company. These would not be deposited since they do not represent any voice in the management of the Missouri Pacific properties. The only carrier corporation other than the Missouri Pacific, outside the Chesapeake & Ohio system, controlled by Alleghany is the United States Trucking Corporation (U. S. Trucking), all the outstanding stock of which is owned by Pittston. By depositing in trust its holdings of Pittston stock, Alleghany would effectively divest itself of control of U. S. Trucking without sacrificing intrinsic values which at present inure to its own stockholders and without depriving minority Pittston stockholders of whatever rights they have incident to the control of U. S. Trucking by Pittston. Under its proposal, Alleghany would be committed to deposit in trust any voting stocks of carrier corporations not at present affiliated with the Chesapeake & Ohio which it may hereafter acquire. It would also be prevented from acquiring indirect control of other carriers, except with the approval of the Commission, through the Chesapeake & Ohio. The proposed deposit by the Chesapeake & Ohio of its holdings of Pittston stocks and Erie stocks and the proposed agreement of the Chesapeake & Ohio to deposit in trust voting stocks of other carrier corporations outside its own system which it may hereafter acquire without our authority, are intended to accomplish this result. The provisions of the proposed trust agreement as to voting the deposited stocks are intended to vest in the voting trustees the sole right and duty of independently voting such stocks not only for election of directors, but also on matters which are submitted to the stockholders, not because applicable law provides for such submission, but because the board of directors in its discretion prefers that such matters, i. e., those normally pertaining to its management functions, be submitted to the stockholders for determination. Under these provisions, however, Alleghany and the Chesapeake & Ohio would have the right to vote the stocks on matters other than the election of directors, which, under applicable State law, must be submitted to stockholders, i. e., those matters normally pertaining to the intrinsic investment value of the stocks, such as mergers, consolidations, sale or sales of all or substantially all of the assets, changes in the terms or priorities of stocks, and matters of similar import. The present board of directors of Pittston consists of 10 members of whom 7 have never occupied positions with Alleghany, the Chesapeake & Ohio, or any of their affiliated corporations outside of the Pittston. Of the other 3 directors, 2 are also directors of the Chesapeake & Ohio, and the third is a director of the Nickel Plate. To further assure the independence of the corporations whose stock would be deposited under the trust agreements, it is proposed to eliminate these interlocking directorates. To this end 3 would resign as directors of the railroad companies. There are no interlocking relationships between Alleghany, the Chesapeake & Ohio, or its affiliated corporations, on the one hand, and the Erie, the only other corporation |