Case Summary: Pennsylvania Railroad and Ny Central Railroad 1968
On February 1, 1968 Pennsylvania railroad and New York Central Railroad merged together, which at the time of publishing “Deals from Hell” (2005) was the largest US corporate merger. National interest was at stake due to the magnitude of this union as it was estimated to contribute 3% of national GDP and should the corporate entities fail it would also lead to an estimated 3% unemployment as well. Unfortunately this merger was doomed for failure only 29 months later when bankruptcy was filed as what was described as “a perfect storm of failure”. Leading up to the merger the Railroad industry had been changing, as a result many companies were merging to cope with the stress. Although in the 1920’s the railroad industry was experiencing the most profitable time ever, many new developments such as the diesel engine, airplanes, trucks and broadcasting reduced the need for the railroads. In 1962 the CFO of Pennsylvania (David Bevan) testified that the railroad industry was unable to support it’s self nor earn a profitable return for investors. For both companies it seems as though the only solution to the problems was merging. In fact, both companies seem as though they determined to merge no matter the cost nor the concession required. It appears as though there was very little foresight and planning for after the merger took place. Also, Pennsylvania was not the preferred choice for merging for New York Central but rather it was the default choice, as they had been turned down from merging with a different company previously. Finally, to ensure the deal took place they had made costly arrangements with Unions to rehire 5000 employees who had already been terminated as well they had to offer lifetime job protection which was a costly mistake due to the fact that the assumed cost savings were never realized. It appears as though both companies recognized the necessity to merge and were driven to that goal without proper planning for after the deal took place as