Acquisition of Conrail

Topics: Consolidated Rail Corporation, CSX Transportation, Norfolk Southern Railway Pages: 4 (598 words) Published: April 13, 2011
Acquisition of Consolidated Rail Corp

Part A

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....
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