Conrail Case Study

Intermodal. Intermodal is the form of moving freight utilizing multiple modes of transportation. One of the most common is rail and truck. Typically, a trucking company will pick up a trailer or a container at a customer’s facility, take the product to a railroad intermodal yard to normally be shipped several hundred miles away (although shorter hauls are becoming more common) to arrive at another railroad intermodal yard to be unloaded and picked up by a trucking company to take the goods to the final destination. The nation’s railroads have focused on this segment of business in the last several years due to a sharp decline in hauling coal. Coal has always been one of CSX’s main sources of revenue. “Railroads wrung efficiencies out of their costs, and discovered that if you make even a little money on a lot of volume, you're soon talking big bucks.” (Frailey, 2011, p. 1) CSX has utilized their own trucking brand to deliver trailers from or to intermodal yards cutting out the additional company in many instances. In this segment of the business strategy, CSX was behind its competitors. The main competitor is Norfolk Southern which operates in the eastern United States just as CSX does. The reason that this information is important is due to investments in infrastructure. Many people do not know that generally the railroad have to fund most of their track maintenance and improvements out of their

In addition, like any other merger between two firms, companies benefit from significant cost synergy during the implementation of an acquisition and/or merger with other company. For example, when two companies combine their strengths to complement each other, they restructure their operations and as a result several offices and sites are closed down which leads to the laying off of employees, consolidating services and software applications. All these changes, result in synergy savings for the new company.

The Canadian National Railways is a part of the Railway Industry and it is the most popular and longest system all over North America. It is the only “transcontinental railway” company that Canada has which crosses the Atlantic Coast in Nova Scotia to the Pacific Coast in British Columbia. The CN Railway system provides transportation services to coal, automobiles, grain, beverages, lumber and metal products. They use railway containers which is a cost-effective method that helps easily transport Canadian and American goods. CN Railway’s profit increases every year due to the vast amount of items it transports and this causes multiple consumers and businesses to be involved with the CN Railway Company. (Canadian National, 2015).

In 2011, Pershing Square Capital Management acquired some 14.2% of Canadian Pacific Railway’s (CP) outstanding shares and proceeded to require several changes in the management and governance of the company. The CP board resisted fiercely these entreaties, which led to an intense proxy fight. Eventually, Pershing won the battle and brought in a new CEO and new board members and designed a new strategy for CP as well. Since the shakeup of the CP’s board and senior management, the company’s stock price has more than triple between 2011 and 2016. Furthermore, under the new management, CP increased operational efficiency, improved performance and enhanced competitiveness. These performance ratios and financial indicators show that CP benefited

The freight rail industry in the U.S. is so healthy now, that a comparison of U.S. freight rates to those in other industrialized nations shows the U.S. to have the lowest rates in the world, as depicted in the chart above. In order to continue this trend, however, the country must make

Conrail and CSX, the nation’s first and third largest railroads, have decided to participate in a merger of equals. CSX has offered to acquire Conrail in a two tiered deal. The first 40% of tendered Conrail shares will be bought at a price of $92.50 while the remaining 60% will be acquired through a stock swap at a ratio of 1.8561921 (CSX:Conrail). In the midst of this offer, a hostile Bid comes in from Norfolk Southern, a competitor in the Industry. Norfolk Southern offers ____

The principal benefits from consolidation include increase value generation and higher cost efficiencies. Most mergers can generate tax gains, increase revenue, reduce uncertainty, and substantially lower the cost of capital. The 2012 proposed BAE System and European Aeronautics Defence and Space (now Airbus) merger, for example, was largely motivated by a desire to share economic and financial risks, while increasing profits, reducing costs through the realisation of economies of

Additionally, analysts view that either company that would get the merger with Conrail might reduce business for the other company or lead to its collapse. This reference as a ‘scarce jewel’ is further exhibited in the wars that arose after CSX and Conrail announced their intentions to form a merger. These wars are in form of the offers made to Conrail that ended up in a lawsuit by Norfolk Southern to stop the Conrail-CSX merger.

This essay will report the process of this merger happened in 2014 and analyze the impact of this financial event on both parties by using relevant financial theory.

Other merger protestants included shippers besides shipper affiliations, and distinctive railroads. The STB in like manner got sections from other government associations, including the U.s. Limb of Transportation (DOT), and from state and neighborhood associations, and work affiliations. Merger foes considered the proposed answer for centered issues – including trackage rights – to be lacking. They proposed rather either rejection of the merger application or else embellishment its backing on the full divestiture of rail lines to distinctive railroads where competition was crippled. DOJ and others, as reported in Kwoka and White (2004), and White (2002), also considered various the efficiencies affirmed for the merger to be misrepresented, or not unmistakable as open benefits, or else achievable through choice suggests. Kwoka and White furthermore note that certain get-togethers brought issue with instances of SP 's disintegrating cash related condition and centered suitability.

One provision of the merger agreement is the "no talk" clause, which forbids Conrail from pursuing merger discussions with any other party for a period of six months. This essentially forbids Conrail from soliciting other bids. yet if another offer did emerge, the Conrail board could consider the bid and possibly terminate its merger agreement with CSX under a number of conditions.

The combined firm is likely to experice economies of scale which means as output increases, the average total cost will fall. Firstly, the merged firm might be able to better utilise their combined resources both labour and capital, which improves efficiency and productivity. However, the merged firm may cause serious social consequences because it may either cut the size of the labour force or cause employee relocation. In addition, the combined company can: reduce tranportation expense, reduce the cost of developing new technologies and eventually reduce the cost of the product. This can be demostrate in the below graph that as quantity of production increses from Q to Q2, the average cost of each unit decreases from C to C1. In this case, the consumer is benefited by being able to gain the product at a lower price.By applying the law of demand this will eventually increase the quantity of the products. [pic] [pic] source : wikipedia

According to Risberg (2013), the efficiency theory argues that mergers are organizational strategies that are implemented to achieve three types of synergies, namely financial synergy, operational synergy and managerial synergy. Generally, the acquirer firm will have considered the target’s capable assets and resources and presume that they can be beneficial to its own development. The synergy concept reinforces this idea when it comes to mergers. For instance, the synergy concept argues that mergers allow the combining of the efficient parts of the companies and the discarding of parts that are considered redundant. Johnson (2014) observes that synergy occurs in varying ways, for instance, when companies combine their different competitive advantages, potential tax benefit, or high manpower. Any factor that raises the market value of the merging firms is called a synergy. This means that the

Other companies, however, merge in order to reduce the agency costs, which seem not for sound economic reasons. This essay is an attempt to argue that the majority of companies merge for sound economic reasons, whereas some might merge for other reasons.

It is evident that there has been an increase in merger activity over the past few decades around the world and according to Peacock and Bannock (1991) the lure of mergers to be a way of expansion and it can be represented in few main points that motivate the activity.