Bearing in mind that my work is absolutely nuts these days so I don't have too much time to devote here, I can make a few suggestions here:
Burlington Northern vs. Milwaukee Road
The ICC wasn't particularly happy that the Milwaukee Road pulled back from the Pacific in 1980, as it effectively granted BN a monopoly over the Salish Sea ports which at the time were swelling rapidly in traffic - so much so that BN (and subsequently BNSF) ended up spending a fortune to completely rebuild the former Great Northern route over the Cascades in the 1990s, because their Stevens Pass route was massively overloaded and the former SP&S from Portland to Spokane was getting clogged up as well. Keeping the Pacific Extension open is a very good thing for the region, and really for everyone except for BN - and perhaps even for then, as it would likely reduce the load on their Stevens Pass and Stampede Pass routes as well as the former SP&S. As far as how to do that and how it runs is a question with a lot of options.
The C&NW-Milwaukee merger proposal only makes sense if you take into account large amounts of line closures in Wisconsin, Minnesota and the Dakotas. When the ICC was considering this, they figured that the Soo Line and Rock Island would pick up a lot of the slack and that the smaller routes would be able to handle the load. That may or may not have been true, we'll never know, but if you want go this route you'll almost certainly have the whole thing eventually owned by Union Pacific, which is good for the shippers on the route, bad for BN and meh for pretty much everyone else. If you want to make Milwaukee merge with someone before or around the time of BN, I can see the Missouri Pacific or Rock Island both being good options. One could see the ICC denying the UP-RI idea, forcing the Rock Island to chase a new partner - and the Milwaukee, aside from route duplication in Iowa, is pretty much an end-to-end merger, and the Rock Island's 'Spine Line' from the Twin Cities to Kansas City is a line that is just tailor-made for the purpose. An RI-MILW merger would create some difficulties for UP and a lot of it from the Santa Fe, as a big part of the late Rock Island's business was moving huge quantities of agricultural traffic out of the Midwest to the Gulf of Mexico. If this merger happens, the combined company could also offer to ship to the massive grain terminals in Seattle and Tacoma. That's a cash bonanza waiting to happen.
A Missouri Pacific-Milwaukee Road merger would also work well, as it would offer the Missouri Pacific access to both Chicago and the Pacific in one shot, and line duplication between the two is pretty much nil. It also offers the advantage of grain traffic to the Pacific (a BIG source of revenue for BN). Truthfully, though, a Rock Island+Milwaukee Road is more or less a shot-for-shot competitor to Burlington Northern excepting Colorado, Nebraska and Wyoming, where BN's lines through the Powder River Basin offer them a clear advantage.
Colorado and Southern Sell-Off
Realistically, this would have two immediate beneficiaries, those being the Rio Grande or Union Pacific, both of whom would absolutely love the ability to gather cargo in Texas for delivery across the Overland Route or across the Rio Grande Main Line. Both the Rock Island and Missouri Pacific could use it as its on the edge of their networks and has plenty of traffic on its own, but realistically its more useful for the DRGW or UP, both of whom would immediately benefit from buying it.
The Okay-This-Is-A-Little-Nuts Scenario
I admit that this idea is probably unlikely (and bonkers, but to hell with it), if the SP-RI deal you propose happens, I would propose turning this into a super-merger, involving the Rio Grande and Milwaukee Road as well. The Milwaukee and Rock Island merge in the 1960s, and the shake-out from that sees the Rio Grande partner with the new merged railroad, which then maintains the established connections between the Southern Pacific and Rock Island. To get such involvement done, SP unloads most of the Cotton Belt route (keeping the El Paso-New Orleans main line, selling everything else) to the Union Pacific, which would eventually take over the Missouri-Kansas-Texas as well and seeing the Frisco go as OTL to BN.
Now, until the 1990s, there is no way the ICC would approve all four lines merging, but having the DRGW as a bridge between the Rock Island Pacific (my name for RI+MILW) at Denver and Colorado Springs and SP at Odgen makes life just a little tricky for UP on the Overland Route, and the Milwaukee's lines from Portland to Seattle could be (and IMO should be) extended to Vancouver and Roberts Bank, namely to funnel the huge lumber traffic out of Canada and the Cascades to the SP at Portland, who then takes it on south to California. It also gives the SP an easy-pasy way of running its perishables traffic (a SP staple throughout its entire history) on friendly rails as far as New Orleans, St. Louis, Chicago or Vancouver, all good things for them. In this scenario, if its UP who gets the Colorado and Southern from BN, this gives them a great position for traffic headed to the Pacific Coast.
Republic of Michigan's ideas would work too, though the Rock Island would howl like mad at the idea of their Tucumcari-Memphis main (and the Eunice line) being sold to the ATSF.
