1.) On October 15, 1996, CSX Corporation (CSX) then ranked as the number one railroad in
the Eastern United States and Consolidated Rail Corporation (Conrail) then ranked as the third
largest railroad in the Eastern United States, announced the intent to undergo a friendly merger
via a two-tiered transaction with an estimated value of $8.4 billion. During the 1980’s a trend
towards the consolidation of railroad firms began as a result of the Staggers Act which was
passed and in effect deregulated the industry. Consolidation continued into the 1990s with two
billion dollar deals occurring in the Western United States: Burlington Northern acquired Santa
Fe Pacific in 1995 and Union Pacific acquired Southern Pacific in 1996.
CSX wants to buy Conrail in order to better position itself in the market as Conrail was well
diversified and offered intermodal service which included truck trailer, rail cars, container
shipping and barging as well as sea-land services. Conrail was also a viable acquisition target
because it was undervalued in the market and had the potential to increase its net income via cost
reduction and profit increasing activities. Another driving force which made CSX pursue the
merger with the tenacity at which it did was to prevent Norfolk Southern from acquiring Conrail.
This threat was realized a week later when Norfolk Southern with its position as the second
largest railroad company in the East placed a rival bid for a $100 per share. Over the next few
months, both bidders upped their offers.
Both companies (CSX and Conrail) have similar values in regards to safety and operating
efficiency and both do exceptionally well in the industry. Conrail as an acquisition prospect is a
great one as its background can be traced from a series of companies that filed bankruptcy which
happened to be six of the largest Northeastern railroads....