Conrail Case

930 words 4 pages
Perspective: Conrail shareholder.
1. Why does CSX want to buy Conrail? How much should CSX be willing to pay?

Some of the reasons why CSX wants to buy Conrail are, to increase the consolidation in the Railway industry. Further consolidation typically means lower cost for the consolidators fx because economies of scale and synergies and ….
A consolidation also results in lower competition inside the industry, which typically follows with higher, or at least not lower, prices and therefore higher profit.
Another argument that is mentioned in the materials is that CSX want to do the merger, before another company tries. CSX doesn’t want Norfolk southern to get Conrail.

CSX is willing to pay $92.84 per share.

2. Analyze the
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When calculating these numbers, we add synergies and opportunity costs to the base value of Conrail. In this case, the opportunity cost is the potential lose if the other company wins.

6. As a shareholder, would you vote to opt-out of the Pennsylvania anti-takeover statute? Why or why not?

As a shareholder, I would vote to opt-out of the statute, for I can gain about 26% premium for sure. In a short-term, it is good for me. If I don’t vote to opt-out, anything can happen in the future and I may suffer a big loss.

7. Who are the winners and losers as a result of the Pennsylvania statute (both in this deal and more generally)?

CSX is the loser as a result of the Pennsylvania statute. Because CSX pays more than planed-approximately $1244million (16*90.5*0.203+(110-92.5)*0.6*90.5). In addition to that, if without the statute, there is no chance for Norfolk Southern to offer the hostile bid and CSX do not need to increase the prices. Conrail is the winner because the shareholders gain more. Pennsylvania statute brings the competition between CSX and Norfolk Southern and CSX is forced to pay more in order to asked shareholders to vote to opt-out.
In a way, we can say that Norfolk Southern is a winner although he did not win the bid. Norfolk Southern benefits a lot from the Statute, because he had the chance to attend the bid and he squeezed the profit of


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