DIVERSIFICATION AND TRANSPORT INVESTMENT

AN INCREASING NUMBER OF RAILROADS HAVE BECOME INVOLVED IN CONGLOMERATE CORPORATE MERGERS. THE HOLDING COMPANIES WHICH HAVE BEEN ORGANIZED BY THE RAILROADS FOR PURPOSES OF DIVERSIFICATION ARE LISTED IN A TABLE. THIS DEVELOPMENT IS ANALYZED BY CONSIDERING THE FOLLOWING QUESTIONS: (1) THE MOTIVATION, (2) THE REASONS FOR THE CONCENTRATION LARGELY IN THE RAILROAD SEGMENT OF THE TRANSPORTATION INDUSTRY, AND (3) THE REASONS FOR RESORTING TO THE HOLDING COMPANY DEVICE TO ATTAIN A DESIRED OBJECTIVE. THE PRIMARY PURPOSE OF DIVERSIFICATION IS TO ENABLE THE STOCKHOLDERS, AS STOCKHOLDERS OF A CONGLOMERATE ENTERPRISE, TO SECURE LARGER RETURNS AND GREATER GROWTH IN SHARE VALUES THAN CAN BE OBTAINED SOLELY FROM THE RAILWAY INDUSTRY. THE LOW OVERALL RATE OF RETURN EARNED BY THE RAILROADS SINCE WORLD WAR II AND THE POOR GROWTH PROSPECTS OF THE INDUSTRY APPEAR TO BE THE REASON FOR THE CONGLOMERATE MERGERS IN THE RAIL TRANSPORTATION INDUSTRY. THE HOLDING COMPANY WAS RESORTED TO A DEVICE FOR ACHIEVING NON-TRANSPORT DIVERSIFICATION BECAUSE IT CIRCUMVENTS THE LIMITATIONS WHICH RAILROADS WOULD FACE IN RAISING CAPITAL TO FINANCE PROGRAMS OF THE SORT IN QUESTION. THE LEGAL FRAME-WORK IS CONSIDERED IN WHICH HOLDING COMPANIES ARE ESTABLISHED TO CARRY OUT PROGRAMS OF NON-TRANSPORT DIVERSIFICATION. IT IS FELT THAT THERE IS NO SERIOUS OBJECTION TO DIVERSIFICATION WHICH IS STRICTLY SUBORDINATE OR INCIDENTAL TO RAILWAY OPERATIONS AND WHICH DOES NOT INVOLVE SUBSTANTIAL COMMODITY CLAUSE QUESTIONS. HOWEVER, IT IS FELT THAT THE INTERSTATE COMMERCE COMMISSION MUST ADVISE CONGRESS ON THE ACTIVITIES OF THE CONGLOMERATES TO DETERMINE WHAT ADDITIONAL AUTHORITY MAY BE NEEDED TO INSURE EFFECTIVE REGULATION OF RAIL CONGLOMERATES IN THE PUBLIC INTEREST.

  • Availability:
  • Supplemental Notes:
    • Vol 46, No 1, PP 12-21, 1 TAB
  • Authors:
    • HARBESON, R W
  • Publication Date: 1970-2

Media Info

  • Serial:
    • Land Economics
    • Publisher: University of Wisconsin Press
    • ISSN: 0023-7639

Subject/Index Terms

Filing Info

  • Accession Number: 00201792
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Jun 1 1970 12:00AM