Norfolk Southern Railway and Conrail

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  • Topic: Norfolk Southern Railway, Consolidated Rail Corporation, Stock market
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  • Published : October 9, 2010
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The Acquitsition of
Consolidated Rail Corporation
October 4, 2010

The appropriate price per share to offer for Conrail using multiples From our analysis, $105.07 (or roughly, $105) is the appropriate price per share that CSX can offer to Conrail. To come up with this price, we used the acquisition of Santa Fe Pacific by Burlington Northern as a comparable transaction since it has a similar financial profile as Conrail in terms of sales, D/E ratio, assets and projected synergies. Details are shown below: Data Comparison


*Data as of 3Q 1996.

Even though there are other possible comparable transactions, we chose only that of Santa Fe Pacific and Burlington Northern since we believe that the withdrawn deals are not comparable (share price could be lesser than the actual acquisition’s worth). Moreover, the remaining two deals, Chicago and North Western and Southern Pacific are much smaller than Conrail and possibly be having different company profiles, rendering the comparison inappropriate. We decided not to take an average across all 5 firms because the deals are of such different nature (friendly vs. hostile), the firms are very different in size and we consider that unsuccessful deals should not be included (they may have been unsuccessful perhaps because their offers are too low.) Conrail’s price per share by each multiple of the comparable transaction

We selected EPS multiple to determine the price per share for Conrail since the value of the merger is based on projected future cash flows and EPS is the only measure that tells us how much of the projected cash flow will actually translate into returns for the shareholders. Therefore, it is the best estimate multiple. On the other hand, Sales, EBITDA and Book value multiple do not tell us how much the shareholder will earn from this merger. In addition, book value is only an artificial accounting construct rather than the market value. We use estimated EPS of 1996, instead that of 1997,...
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