No. MC-F-35041 A. C. ALLYN AND COMPANY ET AL.-CONTROL; TRANSCONTINENTAL BUS SYSTEM, INC.-CONTROL-CONTINENTAL BUS SYSTEM, INC., ET AL. Submitted January 26, 1948. Decided February 10, 1948 On reconsideration, findings in prior report 50 M. C. C. 193, affirmed. REPORT OF THE COMMISSION ON RECONSIDERATION BY THE COMMISSION: In the prior report and order 50 M. C. C. 193, division 4 conditionally granted authority under section 5 (2) of the act, for Transcontinental Bus System, Inc., to acquire the capital stock of Continental Bus System, Inc., and the motorbus operating rights and properties of Dixie Motor Coach Corporation and The Santa Fe Trail Transportation Company, which companies will be hereinafter referred to as Transcontinental, Continental, Dixie, and Trail. Authority also was granted Transcontinental under section 214 of the act to issue $896,100 of $1 par-value capital stock, and $6,775,590 of 4-percent sinking-fund debentures to the stockholders of Continental, and to Dixie and Trail. Transcontinental was authorized to acquire joint control of Southern Kansas Greyhound Lines, Inc., through ownership of 50 percent of the latter's common stock, to acquire indirect joint control of Panhandle Stages, Incorporated, through ownership of Continental's stock, and to lease certain operating rights of Forest S. Whittlesey, doing business as East Texas Motor Coaches, which rights are now under lease to Dixie. The application of Transcontinental for authority to acquire indirect joint control of Texas, New Mexico and Oklahoma Coaches, Inc., Union Bus Lines, Inc., and Robert F. Grozier, M. E. Moore, Southwestern Motor Carriers Corp., and Mid Continent Coaches, Inc., a partnership, doing business as Rainbow Coaches, through ownership of capital stock of Continental, and direct control of West Coast Bus Lines, Ltd., through ownership of capital stock was dismissed. In each of the latter instances, Transcontinental would acquire less than a majority of the outstanding stock or interest in the 1 This report also embraces No. MC-F-3505, A. C. Allyn and Company et al.-Control; Transcontinental Bus System, Inc.-Purchase-Dixie Motor Coach Corporation and (Portion) The Santa Fe Trail Transportation Company; Lease (Portion)-Forest S. Whittlesey and Finance Docket No. 15752, Transcontinental Bus System, Inc., Securities. companies named. Insofar as the application sought authority for the stockholders of Continental, Dixie and its stockholders, and Trail, to acquire control of Transcontinental, through ownership of capital stock, it also was dismissed. By order entered the same date, division 4 denied a petition of protestants, American Buslines, Inc., and Burlington Transportation Company, for further hearing. By petition filed December 26, 1947, American and Burlington sought reopening, reconsideration, rehearing, oral argument, and reversal of the report of division 4. The Amalgamated Association of Street, Electric Railway and Motor Coach Employees of America, Division 1142, herein called Amalgamated, filed a petition which was later withdrawn. The Brotherhood of Railway Clerks, Freight Handlers, Express and Station Employees, herein called the brotherhood or intervener, also filed a petition for reconsideration. Applicants replied to those petitions. By order of January 12, 1948, we granted the petitions of American, Burlington, and Amalgamated, to the extent they sought reopening, further consideration, and oral argument, and denied them in all other respects; and the prior order was postponed until our further order. Oral argument has been heard. The petition of the brotherhood was received too late to be formally acted upon on January 12; however, its representative was heard in oral argument and its position is discussed hereinafter. The facts involved in these proceedings are adequately set forth in the prior report, they are not in dispute, and will be repeated here only to the extent necessary for clarity of discussion. Transcontinental, a Delaware corporation, was organized June 11, 1947, for the purpose of taking over the motorbus operating rights and property of Dixie and Trail, and acquiring all of the capital stock of Continental. Continental, Dixie, and Trail are independently controlled motor common carriers of passengers, and all have been substantial members of the National Trailways System for a number of years. Their lines are complementary, with insignificant exceptions, and they have cooperated closely in through service and schedule coordination as members of that system and among themselves. Operations of the three companies extend generally between Chicago, Ill., and St. Louis, Mo., on the east, the Texas Gulf Coast, on the south, and Salt Lake City, Utah, Denver, Colo., and San Francisco and Los Angeles, Calif., on the north and west, approximately 18,000 route miles. Trail is a wholly owned subsidiary of The Atchison, Topeka and Santa Fe Railroad Company, herein called the railroad. The routes of Trail are, generally speaking, in the territory served by the railroad, but the routes of the combined system, particularly in Utah, southern Texas, and eastern Oklahoma and western Arkansas, are outside its territory. Under interrelated agreements entered into in April 1947, as modified in September 1947, Transcontinental would acquire the properties of Trail and Dixie and the stock of Continental, in exchange for its stock and debentures to be issued to the indicated persons as follows: The net book value of the stock to be contributed to Transcontinental by Continental's stockholders is fixed at $2,405,095; the net book value of the assets to be contributed by Dixie is $3,200,687, and by Trail $4,520,000. As an incident to the consummation of the principal transaction, a number of minority motor bus interests of the unifying carriers apparently would come under the control of Transcontinental or of its stockholders. It was pointed out in the prior report that a question arises as to whether by the transaction certain of those companies would be brought under control or management in a common interest with Transcontinental in violation of section 5 (4) of the act. Nothing herein contained shall be construed as authorizing or sanctioning the control or management of any of those carriers in a common interest with Transcontinental or carriers controlled by it, except to the extent specifically authorized in the prior report. In the petitions for reconsideration and at the oral argument, protestants American and Burlington emphasized their request for further hearing. At the original hearing herein, held in August 1947, these protestants were represented by four regularly employed counsel. They declined to offer any evidence or to cross-examine witnesses, although they had had knowledge of the transaction for several weeks and had copies of the applications herein for some 38 days. Their request for an adjourned hearing was granted. The adjourned hearing was held more than 30 days thereafter, September 10, 1947. At 776209-49-vol. 50- -23 the adjourned hearing these protestants withdrew their protest. No persuasive grounds for further hearing are set forth in the petition. That request properly was denied. The matter of joint station facilities and operating arrangements with these protestants was emphasized as a matter of importance. Applicants have indicated of record that there is no intention to close any of the routes, gateways, or joint station facilities and the report of division 4 provided that Transcontinental shall maintain and keep open present existing routes and channels of trade by existing junctions and gateways insofar as such matters are within the control of Transcontinental. That finding leaves little ground for argument on this issue. The main point stressed in the petitions and at oral argument relates to the question of railroad affiliation. Protestants argue that the route miles and operating property transferred by Trail to Transcontinental is so substantial that the latter would be operated in the interest of the railroad to a material degree. It is not seriously contended that the railroad would exercise control or be in a position to exercise control of Transcontinental. There are no facts shown to indicate that Transcontinental would be operated in any way in the interest of the railroad. The facts of record are to the contrary. The officers of Continental negotiated separate contracts with Dixie and with Trail. Continental intended, with our authorization, to consummate either or both the contracts. Agreement was reached with both Dixie and Trail and the instant applications were filed. Section 5 (2) (b) of the act reads, in part, as follows: Provided, That if a carrier by railroad subject to this part, or any person which is controlled by such a carrier, or affiliated therewith within the meaning of paragraph (6), is an applicant in the case of any such proposed transaction involving a motor carrier, the Commission shall not enter such an order unless it finds that the transaction proposed will be consistent with the public interest and will enable such carrier to use service by motor vehicle to public advantage in its operations and will not unduly restrain competition. Section 5 (6) of the act reads as follows: For the purposes of this section a person shall be held to be affiliated with carrier if, by reason of the relationship of such person to such carrier (whether by reason of the method of, or circumstances surrounding organization or operation, or whether established through common directors, officers, or stockholders, a voting trust or trusts, a holding or investment company or companies, or any other direct or indirect means), it is reasonable to believe that the affairs of any carrier of which control may be acquired by such person will be managed in the interest of such other carrier. As shown above, Trail contributes more assets to Transcontinental than does either Continental or Dixie. Originally it was agreed that Trail would receive less common stock and more debentures than either Continental or Dixie. Under that agreement, Trail would have received 29 percent, Continental 31 percent, and Dixie approximately 40 percent of the common stock of Transcontinental. These proportions were changed after the original hearing, but before the adjourned hearing, upon advice of the tax consultants who took the position that in order for the transfers to the new company to be a tax-free transaction both common stock and debentures would have to be distributed among Trail, Continental, and Dixie in proportion to the value of assets contributed by each to the consolidation. The bylaws of Transcontinental authorize from 3 to 23 directors. Its charter provides for cumulative voting. The original agreement between Transcontinental and Trail provided that Transcontinental's directorate would be comprised of 9 persons, and that, so long as Trail should retain a substantial interest in Transcontinental 2 of the directors would be representatives of Trail. The 9 directors agreed upon would be 4 representing Continental stockholders, 3 representing Dixie, and 2 representing Trail. The headquarters of the new company are to be at Dallas, Tex., and there is no indication in the record that the railroad intends to participate in any material degree in the management of the new company. As assurance of the railroad's intention to get out of the bus business, and the lack of its desire to participate in the management of Transcontinental, it has indicated a willingness to have our decision herein conditioned to (a) trustee its stock, and (b) provide for no representation on the board of directors or in the management. Such conditions properly could not be required unless we should find grounds for a finding of "control" or "affiliation," neither of which are present in this record. Reports in other proceedings are cited by applicants in support of their position that Transcontinental will not be affiliated with the railroad upon consummation. Particular attention is called to Northland-Greyhound Lines, Inc.-Purchase-Liederbach, 25 M. C. C. 109, 112, 5 M. C. C. 215, and 5 M. C. C. 123; All American Bus Lines, Inc.— Control-Burlington Transp., 40 M. C. C. 527 and 45 M. C C. 48; and Greyhound Corp-Control-Northland Greyhound Lines, 25 M. C. C. 59. The division properly concluded upon this record that Transcontinental, as a result of the transactions, will not be affiliated with the railroad within the meaning of section 5 (6) so as to make applicable the proof requirements of the proviso in section 5 (2) (b). Protection of employees.-The brotherhood, while not opposing the application, requests that any affirmative order in these proceedings, incorporate the following condition: During the period of four years from the effective date of our order herein such transaction will not result in the employees of the motor carrier or carriers affected by such order being in worse position with respect to their employment, |