Conrail Case Study
1. Why does CSX want to buy Conrail? Why can CSX justify paying a premium to acquire Conrail?
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)?
3. How much should CSX be willing to pay for Conrail? Value Conrail using the multiples of competitors as well comparable transactions methods. For calculations, show your work (don’t just write the final number).
4. Analyze the structure of CSX’s offer for Conrail.
(a) Why did CSX make a two-tiered offer?
(b) Discuss the various anti-takeover measures included in the CSX-Conrail merger agreement (i.e., no-talk clause, poison pill, break-up fee, lock-up options). What implications do these provisions have for the cost of acquiring Conrail for other bidders (other than CSX)?
5. As a shareholder of Conrail, would you tender your shares to CSX at $92.50 in the first-stage offer? Why?
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