Dereco was created by the N&W in 1968. Erie Lackawanna had voiced serious concerns about the N&W/NKP/Wabash merger, the PC merger and the pending N&W/C&O merger (which never happened). Thus the ICC directed the N&W to bring a number of eastern RRs into its fold: EL, the D&H, the Reading, CNJ and B&M. All of them except the D&H were struggling. In fact, the CNJ was already bankrupt. Thus the N&W created a holding company to purchase them. The name Dereco was based on the acronym of several of these RRs, although Dereco ultimately acquired just the EL and the D&H.
Here is the definition of a holding company from Wikipedia
A holding company is a company that owns part, all, or a majority of other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself, rather its only purpose is owning shares of other companies. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies. Eighty percent or more of voting stock must be owned before tax consolidation benefits such as tax-free dividends can be claimed.
Wiki's description definitely fits Dereco. It allowed N&W to acquire EL and D&H, without having direct responsibility for EL's debt. Dereco lasted 4 years, while the N&W tried to make the EL profitable. The situation became hopeless when EL declared bankruptcy in 1972, and Dereco was quickly dissolved as a business entity. The three RRs did continue some joint operations until April of 1976, when Conrail took over most of EL's tracks east of Akron, OH.
As a final footnote, N&W paid the EL estate $5.5 million in August of 1976 because it had taken advantage of EL's losses during Dereco (1970-'72) for tax purposes.