Conrail Case

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The Acquisition of Consolidated Rail Corporation
1. CSX wanted to merge with Conrail, because the consolidated company would have more than $8.5 billion in rail revenue and almost 70 % of the Eastern market. Gain in Operating Income from Cost Reduction would bring additional $370 million by the year 2000. Total gain from revenue increase would result in additional $180 million. And from the operating income would reach $550 million. Another important point in CSX-Conrail merger is the better competitive position in both long-haul and short-haul routes through cost reduction. The last reason for buying the Conrail was the fear of CSX Company to lose competitive advantage and as a result to lose a lot of revenue, if Conrail merge with another company. CSX should be willing to pay not less than $8.3 billion. 2. CSX is offering a two-tiered offer. The first stage is a Cash-offer of $92.50 per share for 40 % of the common stocks. The second stage is share change for the remaining 60 % of Conrail’s shareholders; Conrail’s old shareholders should get 1.85619:1.0 new CSX shares per Conrail share which is based on CSX’s share price value of $89.07. According to Pennsylvania Business Corporation Law bidders that hold more than 20% of the company’s stock are forced to offer all shareholders the same price unless the shareholder of the target company nullified this provision (“fair value” statute). Additionally the bidder’s voting right was capped to 20 % unless the management or the shareholders approved voting rights for the shares the bidder holds. The first stage is also split into two parts, as in the first step 19.7 % of Conrail shares shall be acquired via a tender offer. Additionally to the CSX was supported by the management that owned 1.3 million shares and the employee trust which controlled 13.0 million shares. Consequently 35.5 % of the shareholders were in favor of the merger and only the support 14.6 % was necessary. The remaining 20.3% shall be bought...
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