Freight railroads are an essential part
of the United States economy. It's hard to overstate just how important
they are to providing us with the commodities that make our daily life possible. Of course, railroads are corporations. Big ones. And they're just as susceptible to corporate
missteps as any other company. The 1980s and 90s were the age of the rail merger,
with dozens of struggling railroads combining together to form stronger, more profitable companies. With these mergers taking place left and right,
two of the country's most iconic railroads found themselves in a position to do the same. Their plan ultimately failed, and that failure would become one of the most infamous stories in American railroading. The American rail industry was in a state of
financial ruin throughout the 1960s and 70s. Companies were held down by
regulations that dated back to 1887, and many of them went bankrupt just
trying to cover their operating costs. With the industry on the brink of collapse, politicians dramatically loosened restrictions on the railroads. This deregulation not only gave companies much
more freedom to control their own finances, but it laid the groundwork for them to merge
into bigger corporations than ever before. The first of these so-called mega mergers
was Burlington Northern in 1970. This was initially a combination of four companies, with
a couple more being absorbed in the coming years. This network dwarfed all the others in the industry,
and it left everyone else scrambling to try to catch up. In early 1980, Union Pacific caused a big stir of their own when they announced their plans to acquire
the Missouri Pacific and the Western Pacific. This triple merger would more than double Union
Pacific's size, making it another titan in the west. When completed, there would only be two
major railroads left on this side of the country: the Southern Pacific, and the Atchison, Topeka & Santa Fe. While they had been fierce competitors for over a hundred
years, they were now faced with a shared dilemma. As one executive would later put it, "We had
become medium-sized railroads in a land of giants." Southern Pacific was one of the
oldest corporations in California, with a national network spanning about 13,000 miles. From its headquarters in San Francisco, its routes
ran along the west coast from Portland to San Diego. Through the southwest it ran through
Texas and out to the Gulf of Mexico, reaching as far as New Orleans. Through its subsidiary the Cotton Belt, Southern Pacific
also had access to Kansas City and St. Louis. Meanwhile, Santa Fe was similar in size. Its network spanned about 12,000 miles,
and covered some of the same territory. From its headquarters in Chicago, it ran from
the Midwest into the south central states. Its southern routes reached down to Houston,
while its northern routes went up as far as Denver. Through the southwest it reached
its hub in Barstow, California, and stretched from the southern
border to San Francisco. Both companies were sizable in their own right,
but their profits were getting slimmer by the day. They had already been seeing harsh
competition from the trucking industry. But now they were also facing rail
competitors that were twice their size. The industry was rapidly changing
around them, and it soon became clear that they would need to join forces in order to survive. In January of 1980, just weeks after Union Pacific
made its big merger announcements, executives from Santa Fe and Southern
Pacific began meeting behind closed doors. After four months of negotiations, on May 15, the
companies publicly announced their plans to merge. Southern Pacific's CEO, Ben Biaggini, made the announcement to hundreds of shareholders
at their annual meeting in San Francisco. Meanwhile, Santa Fe's CEO, John Reed, made the
announcement at a news conference in Chicago. The newly combined railroad would be called the
Southern Pacific and Santa Fe Railway, or SPSF. It would be the largest in the US by revenue, and the
second largest by length, comprising 25,000 miles. SPSF would be the end game of
rail mergers in the western US, standing alongside Burlington Northern in
the north and Union Pacific in the middle. Of course, the merger would need to be
reviewed and approved by the US government. This was the responsibility of the Interstate
Commerce Commission, or ICC. The industry was immediately abuzz with excitement
and speculation about the future company. Some were quick to point out that the two
railroads covered a lot of similar territory, which could result in a monopoly in some regions. There was some question whether
the ICC would allow this to happen. But when compared to Burlington Northern and Union
Pacific, this situation didn't seem all that different. John reed said, "I have difficulty seeing how they
can approve monsters like those and decline ours." Curiously, just four months after
their shocking announcement, Santa Fe and Southern Pacific
cancelled their plans for the merger. The industry was surprised and confused, as
the companies had given no official explanation. But from the inside, the reason was obvious. Ben Biaggini had a domineering personality,
while John Reed was more reserved. Their leadership styles
were fundamentally different, and they had trouble agreeing on many important aspects of the business. Between this, and concerns about the ICC review process, the idea was scrapped, and they
agreed to go their separate ways. Southern Pacific and Santa Fe
continued operating on their own, working hard to stay afloat through the
economic recession of the early 1980s. As if this didn't make things hard enough, the ICC approved Union Pacific's
triple merger in September of 1982. A few months later. Santa Fe announced that John
Reed would be retiring from his role as CEO. Replacing him would be the company's president, John Schmidt. Schmidt had been a big supporter
of the merger from the beginning, and he had encouraged Reed to
begin the negotiations back in 1980. Now after three years of waiting for Reed
to retire, Schmidt was finally in charge. He immediately announced that Santa Fe
was interested in finding a merger partner. When asked whether they would go
back to the Southern Pacific, he said, "I'm not saying that it will be the railroad or that it won't." Southern Pacific soon announced that they
were looking for a merger partner as well. Ben Biaggini teased the possibility of going back to Santa Fe, but declined to confirm whether they were actually in talks. He said, "If you're at a dance, and if you want
to waltz around the floor, the girl has to be willing. As of now we are just looking for
a partner we can make beautiful music with." While the two companies seemed to
be dancing around the subject, industry insiders predicted it would only be a
matter of time before they got back together. Indeed, their negotiations resumed by late
1983, and in September they made it public. Three years after parting ways, Southern Pacific
and Santa Fe were giving it another shot. Almost immediately, they merged their holding
companies into the Santa Fe Southern Pacific Corporation. John Schmidt would become Chairman
and CEO, and Southern Pacific's Robert Krebs would become the president. The two railroads would continue to be managed
separately until the ICC approved the merger. This was expected to take at least two years, but industry analysts agreed that SPSF would almost certainly be approved. The merger of the two railroads now seemed inevitable, and the two companies began upgrading
their infrastructure, replacing old bridges, and connecting their tracks together with new interchanges. Meanwhile at headquarters, tensions were
high among the executive leadership. John Schmidt insisted on making every decision
himself, and he didn't get along well with Robert Krebs. Krebs later wrote, "There was this feeling
of paranoia surrounding headquarters. "The focus became more on office politics, as
opposed to how we might improve our operations, grow the company, and make money." Of course, the merger was facing an uphill
battle outside the company as well. The railroad's customers were still concerned the
SPSF would become a monopoly and drive up their shipping rates. The problem was that Southern Pacific and
Santa Fe had thousands of miles of parallel routes. This was a major concern in California, where
SPSF would control 76% of the rails in the state. Things were even worse in Arizona and New Mexico, where SPSF would be the only major
railroad serving those states. Union Pacific and other competitors clamored against this, demanding their own access to the future network. This was actually a common practice. Whenever a new merger occurred, competing railroads were often allowed access to some of the newly combined routes. This route sharing would help keep the competition
balanced in areas where it would otherwise be lost. However, John Schmidt was outraged at the
thought of making this sort of compromise. He called these ideas opportunistic and unwarranted. He threatened that if the ICC required anything
like this, he would call off the merger entirely. The ICC's public hearings began in October
of 1984, with Schmidt as the lead witness. He argued that the merger was necessary
for the survival of the two railroads, as they were hurting financially and wouldn't
stand a chance against their larger competitors. According to some spectators, the ICC's hands were tied. They had approved every rail merger in the last 20 years, which had helped create these mega mergers in the first place. It didn't seem fair to suddenly turn around and
deny Santa Fe and Southern Pacific's request. However the ICC was facing immense political
pressure to regain control over the industry. And with the SPSF merger in its lap, it now had to
deal with a problem that it had largely created itself. Now, what happened next was a decision that
would live in infamy for decades to come. While the ICC proceedings were taking place, the two railroads were confident enough to begin
developing the new paint scheme for SPSF. Both companies submitted their ideas for consideration,
and they eventually landed on the following: The locomotive body would be painted in Southern Pacific red, with the roof behind the cab painted in black. The cab itself would be painted in Santa Fe yellow, and the nose would have a solid red stripe that flared out to four
smaller stripes on the side. Unit numbers would be painted on the sides of the cab in red, and the number boards would be red with white numbers. White SPSF lettering would be painted on the nose,
as well as in large letters on each side. The idea was that the companies could
start painting their locomotives now, with Southern Pacific only displaying
SP, and Santa Fe only displaying SF. Once the merger was approved, they
could simply fill in the missing letters. The red, yellow and black color scheme
would soon be nicknamed "Kodachrome," for its resemblance to the popular Kodak film
used by many rail enthusiasts at the time. The new paint scheme was prototyped in late July of 1985. Santa Fe's shop in San Bernardino revealed
the first unit in the new scheme, #5394. It was released into service about a week later. Meanwhile, Southern Pacific's shop in Sacramento
painted its first unit, 7551. It was soon moved up to Eugene, Oregon to begin service. About a month later, the design saw some final changes. The lettering was changed from white to yellow. The four stripes on the nose were reduced to three. And the black roof line was raised up a little higher. This would be the final version of the paint scheme, and by December of 1985, Santa Fe began rapidly painting their locomotives. Southern Pacific followed suit a
month later in January of 1986. In June, Santa Fe painted two of its locomotives,
7219 and 7221, with the full SPSF lettering. These units were never released from the shop this way. This was for the official company
photos of the full paint scheme, which would be sent out in the press kit
as soon as the merger was approved. Finally, the ICC scheduled its ruling for
July 24th, 1986. According to Robert Krebs, John Schmidt told him,
"I'm going to fly to Washington, D.C. "Tomorrow morning I'm going to the
Interstate Commerce Commission building. "I'm going to go to Hearing Room B.
I'm going to sit in the first row, "and I'm going to watch the Interstate Commerce Commission approve the merger five-to nothing with no conditions." Executives and industry analysts packed the
hearing room at the ICC building. After more than two and a half years of reviewing the case,
the commission was finally ready to cast their vote. Everyone sat in stunned silence as the vote was taken. The tally was four to one, rejecting the SPSF merger. The hearing was scheduled to last the entire day,
but it was adjourned in just 10 minutes. News quickly spread, and employees of the two companies rushed to the phones to tell their families the news. Jerry Perra was Southern Pacific said, "Nobody in their
wildest thoughts ever expected an outright denial." Executives were devastated, and the industry was shocked. The Chicago Tribune called it "the most baffling decision in the 100-year history of the Interstate Commerce Commission." Indeed, the ICC commissioners had
not only broken a 20-year precedent, but they had also ignored their own staff, who had
actually recommended that they approve the merger. John Schmidt was now in a precarious position. Not only was the merger deemed anti-competitive, but
now he was required to sell off one of his two railroads. He told the press that the rejection was "a horrible mistake." He and his team were so confident that their plans would work, they hadn't come up with any backup plan in case it failed. The future was looking grim, especially for Southern Pacific. Treasury Analyst Michael Fore said, "This company is now a shell of its
former self. "There's probably no way it can survive on its own. "The mental anticipation and
letdown has been pretty traumatic." Perhaps the least of the companies' problems was the
fleet they had been painting over the last six months. More than 400 locomotives were now wearing the
paint scheme for a railroad that would never exist. A joke soon spread around the industry
that SPSF stood for, "Shouldn't Paint So Fast." The one saving grace was that the ICC's
ruling could be appealed through federal court. And less than two weeks later, John Schmidt
confirmed that's exactly what he was going to do. At a news conference he said, "We won't roll over and
play dead in the face of a decision that is clearly wrong. "We're going to try to get the decision
turned around as soon as possible." While a company scrambled to build their case, they
looked for any way they could to help drum up support. As part of their campaign, Santa Fe quickly
painted a special boxcar called the Rail-O-Gram. This was a traveling telegram of sorts, which read: "To U.S Senators and Representatives, please
support the Santa Fe / Southern Pacific rail merger." The boxcar was sent to the Railroad Days Festival
in Topeka, Kansas over Labor Day Weekend. More than 5,000 people signed the boxcar, and photos and petitions were sent
to congressmen in Washington. Although John Schmidt had said he'd rather see the
merger fail than give in to his competitors' demands, now he had no choice but to get their support. The first to make an agreement was
the Denver & Rio Grande Western, which would get trackage rights on SPSF's network between Ogden, Utah, Portland, Oregon and Bakersfield, California. In exchange, they would stop campaigning against
the merger and instead petition for its approval. Likewise, a similar agreement was
soon made with Union Pacific. In exchange for their support, they would get access
from El Paso, Texas to Colton and Lathrop, California. Between these and similar agreements with other railroads,
the appeal was looking more promising by the day. Analyst Andras Petery said,
"I think it's a pretty encouraging thing. "I think this is the kind of deal the commission was looking for." James Voytko agreed, saying, "The odds have clearly gone up some that the commission will reconsider the decision." But another surprising twist was just around the corner. Over Easter weekend in 1987, John Schmidt
suddenly resigned from his role as CEO. The announcement was very brief and gave no specific details. But it was immediately clear that the
board of directors had ousted him from the company. Analyst Burton Strauss said, "I don't think
he resigned voluntarily, let's put it that way. "I think the board was determined to go ahead with the merger, "and they thought someone else should take it from here." Indeed, Schmidt's role was temporarily
filled by his predecessor, John Reed. Although Reed had retired a few years earlier,
he had stayed on as a member of the board. A couple of months later in June, the ICC confirmed in
another four-to-one vote that they would not reopen the case. The merger would never happen, and the company
still had to sell one of the two railroads. John reed knew it was time to give up the fight. He said, "Our employees and shareholders have already
been held in suspense and uncertainty for too long. "We're simply going back to square one, running
one railroad or the other, or conceivably neither." Soon after the appeal was denied, Robert Krebs was
made the new President and CEO of the holding company. His first task was to figure out which
railroad to sell, if not both of them. Industry analysts had long suspected that the struggling
Southern Pacific would be the one to be sold off. This hunch was correct, and it was sold to
Rio Grande Industries about a year later in 1988. Krebs held on to Santa Fe for seven more years,
until it merged with Burlington Northern in 1995. This made him the first President and CEO of the
new Burlington Northern and Santa Fe Railway. Partly in response to this, Rio Grande and Southern
Pacific merged into Union Pacific a year later in 1996. Since then, BNSF and Union Pacific have remained
the only major players in the western US. Today, one surviving example of the SPSF
paint scheme lives on in preservation. Southern Pacific #2873 resides at the Western
Pacific Railroad Museum in Portola, California. The colors may be faded, but it's a lasting reminder
of this unique chapter in the company's history. While there's only a handful of massive
railroads dominating the US today, a wave of even larger mergers may still be on the horizon. However it plays out, these companies
will be wise to take a page from history, and remember that they shouldn't paint so fast. you
