Conrail Case Study

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 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.

Although CP’s performance and efficiency improved after Pershing brought in a new management between 2011 and 2016, it seems that Pershing was primarily interested in the short-term profit from the investment in CP Rail and not in the long-run success and health of the company.

3. A break-up fee of $300 million charged to Conrail. This guarantees that CSX will not lose the money they used to pay for the deal’s fees while compensating the Company for their time spent and reputation involved with the deal. This demotes Conrail to consider other bidders or to decline the merger in such a late stage of the deal process. On the other hand, this could also benefit Conrail because if another bidder emerges then that new bidder would be required to pay at least $300 million extra to Conrail to cover the break-up fee.

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.

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 ____

Conrail had its operations within the Northeast market, a rail network that other rail companies were yet to explore. It connected the Northeastern cities to the Midwestern and Southern cities. Even though Conrail had a high cost position, the revenue it obtains relative per mile track operated is the highest, giving it a high operating ratio, hence potential to increase income. For this reason, great synergies would be created should there be a merger with CSX, Norfolk Southern or any other rail company at all.

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

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

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.

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.

By combining the market share, it represents a threat to the new entry. As the merged company has the reputation of quality control and security of supply, it is more reluctant for the new entry to switch and also be difficult to meet its initial stages of operation to generate profit.

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.

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.