Industry Surprised as Schmidt Leaves Santa Fe Southern
By NANCY RIVERA BROOKS
APRIL 21, 1987 12 AM PT
TIMES STAFF WRITER
John J. Schmidt, the tenacious chief of Santa Fe Southern Pacific who has led the four-year fight to merge the company’s two railroads, has resigned as chairman and chief executive of the Chicago company, it was announced Monday.
Schmidt’s surprising resignation on Easter Sunday, “to pursue other interests of a consulting and entrepreneurial nature,” left analysts confused, especially given the holiday timing.
Analysts speculated that Schmidt was forced out by a disgruntled board of directors at a hastily called weekend board meeting or that the 59-year-old Schmidt himself had become discouraged by the roadblocks to merging the Santa Fe Railway with the Southern Pacific Railroad.
But company insiders said Schmidt had been under increasing pressure and was asked to resign by the board.
Santa Fe Southern spokesman Robert E. Gehrt declined to discuss the circumstances surrounding Schmidt’s resignation, which was effective Sunday.
Gehrt said that Schmidt was not available for comment, and a secretary in Schmidt’s office said he was not taking any calls from the news media.
The suddenness of the resignation was underscored by the naming of lifelong railroad man John S. Reed, who was Schmidt’s predecessor at Santa Fe Industries, as Schmidt’s temporary replacement.
Reed, 69, retired in 1983, shortly before Santa Fe Industries merged with Southern Pacific Co. Reed has remained a director of Santa Fe Southern and has continued to maintain an office at the company, Gehrt said.
Schmidt was the architect of the attempted merger of the Southern Pacific Railroad with the Atchison, Topeka & Santa Fe Railway, and some blamed him when the Interstate Commerce Commission unexpectedly rejected the merger last July as “anti-competitive.”
Schmidt, critics contend, had been unwilling to cater to competitors’ objections with trackage rights and other concessions and had demanded that the ICC approve the merger as presented or not at all. Since the stunning 4-1 rejection, Santa Fe Southern has received support from most of its competitors in exchange for concessions.
The ICC has said it will consider reopening the merger case.
In the meantime, the Southern Pacific Railroad is being held in a voting trust and Santa Fe Southern’s two railroads must actively compete for business.
If the merger is denied, Santa Fe Southern must sell one of its railroads.
The tersely worded two-paragraph announcement of Schmidt’s resignation lacked the usual laudatory phrases that frequently accompany such partings.
In addition, Schmidt’s separation from Santa Fe Southern appears to be complete: Even though he intends to act as a consultant, he will not be consulting for Santa Fe Southern, Gehrt said.
“It’s quite a mystery,” one railroad analyst said. “It certainly took the world by surprise.”
Burton M. Strauss, an analyst with E. F. Hutton, 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.”
Railroad consultant Isabel Benham agreed: “I think he was asked to resign, and the reason is that things haven’t been going too well,” said Benham, president of Printon, Kane Research. “The stock has not done well in this strong market . . . and the board was upset with the way he has handled the merger.”
Wall Street reacted favorably to the news. Santa Fe Southern’s stock rose $2.25 on the New York Stock Exchange to close at $40 per share on Monday. The stock was sixth on the Big Board’s list of most actively traded issues with nearly 1.6 million shares changing hands.
Some company insiders see Schmidt’s resignation as the culmination of turmoil within the company marked by clashes in management style and personality between Schmidt and other executives. Some officials reportedly were disgruntled about concessions granted to competitors.
Schmidt, a lawyer by training
, joined Santa Fe Southern in 1955. He became president of Santa Fe Industries in 1978 and chairman in early 1983. He became chairman of Santa Fe Southern Pacific later in the year, when Santa Fe Industries and Southern Pacific Co. merged.
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