Conrail Case Study

1665 WordsMar 2, 20157 Pages
Conrail Case Study 1. Why does CSX want to buy Conrail? Why can CSX justify paying a premium to acquire Conrail? The Stagger’s Rail Act of 1980 has created a deregulated environment in which acquisitions are used to improve the competitive positioning of existing companies within the railroad industry. CSX is interested in Conrail for a couple of reasons. Primarily, CSX-Conrail merger would result in more than $8.5 billion in revenues and nearly 70% of the Eastern market. The combined entity would be able to control the railroads between the Southern ports (CSX), the Northeast (Conrail) and the Midwest (both). By having a full access to these markets the new company would be able to offer services to its clients for a lower price…show more content…
const growth model at | 4% | | | | | 6556 | | After tax | 35% | 0 | 156 | 339 | 475 | 4750 | | PV | | 0 | 116 | 217 | 263 | 2268 | | NPV | 2864.457 | | | | | | | Shares | 90.5 | | | | | | | NPV per share | $ 31.65 | | | | | | | | | | | | | | | Opportunity Cost | | 1997 | 1998 | 1999 | 2000 | 2001 | | Loss if rival gets target | | 0 | -66 | -123 | -189 | -196 | | TV w. const growth model at | 4% | | | | | -1709 | | After tax | 35% | 0 | -43 | -80 | -123 | -1238 | | PV | | 0 | -32 | -51 | -68 | -591 | | NPV | -742.462 | | | | | | | Shares | 90.5 | | | | | | | NPV per share | $ (8.20) | | | | | | | | | | | | | | | Pre-merger | $71.00 | | | | | | | Gain | $ 31.65 | | | | | | | Opp cost | $ 8.20 | | | | | | | Total | $110.86 | | | | | | | 4. Analyze the structure of CSX’s offer for Conrail. (a) Why did CSX make a two-tiered offer? A two tiered deal was made by CSX because of the heavy regulation Pennsylvania has for mergers and to provide financial considerations for Conrail’s shareholders. Pennsylvania’s Business Corporation Law makes it difficult to perform a first tier tender offer this is why CSX choose to split the offer into two stages. The first stage cash offer of $92.50 per share enables

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