Conrail2
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 (economies of scale). Additionally, CSX’s acquisition of Conrail would prevent the company’s main competitor Norfolk Southern from gaining access to routes in the Northeastern United States. The Midwest market, where both firms were heavily present, would become a center of operations and the result would be a reduction of marginal costs. The new business would be able to faster load and unload goods with more line tracks available for transportation, higher co-operation and greater manpower, not to mention benefits from exchange of market knowledge and client base.
Beside this there were potential to capitalize on the opportunity of being the first railroad company to connect the East to the West.
Geographically well placed
Network already existing
Financial capacity present Also it’s worth to mention that the railroad industry was a mature market and the only option to grow was through acquisitions.
2. Why would the Surface Transportation Board (STB) likely approve the merger (i.e., why might the STB not be too concerned about the impact the merger will have on competition in the northeast)? It`s very unlikely that the Surface Transportation Board would block the merger. Firstly, STB earlier approved two mega-mergers
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 (economies of scale). Additionally, CSX’s acquisition of Conrail would prevent the company’s main competitor Norfolk Southern from gaining access to routes in the Northeastern United States. The Midwest market, where both firms were heavily present, would become a center of operations and the result would be a reduction of marginal costs. The new business would be able to faster load and unload goods with more line tracks available for transportation, higher co-operation and greater manpower, not to mention benefits from exchange of market knowledge and client base.
Beside this there were potential to capitalize on the opportunity of being the first railroad company to connect the East to the West.
Geographically well placed
Network already existing
Financial capacity present Also it’s worth to mention that the railroad industry was a mature market and the only option to grow was through acquisitions.
2. Why would the Surface Transportation Board (STB) likely approve the merger (i.e., why might the STB not be too concerned about the impact the merger will have on competition in the northeast)? It`s very unlikely that the Surface Transportation Board would block the merger. Firstly, STB earlier approved two mega-mergers