Conrail Case Study

1025 words 5 pages
(a) Why did CSX make a two-tiered offer? What effect does this structure have on the transaction?

A two tiered deal was made by CSX because of the heavy regulation Pennsylvania has for mergers and to provide financial considerations for Conrail’s shareholders.
Pennsylvania’s Business Corporation Law makes it difficult to perform a first tier tender offer this is why CSX choose to split the offer into two stages. The first stage cash offer of $92.50 per share enables CSX to gain control of Conrail’s stock as shareholders should be willing to trade their ownership for such a significant payout. The remaining shareholders who decide not to give up their shares will only be paid $86.78, calculated from taking the initial stock price of
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Case B Q4.
4. As a shareholder would you vote to opt-out of the Pennsylvania anti-takeover statue? What do the capital markets expect will happen?
As a shareholder you do not have a win/win strategy anymore. On one hand you have CSX which is obviously scared that shareholders would not vote the opt-out and is increasing the price and extending the no-talk clause to make sure the Norfolk bid is not even considered as a bid by the shareholders. On the other hand you have Norfolk who keeps increasing the price and is backed by banks – creating incentives for shareholders not to opt-out, and instead force the board to get out of the no-talk clause and consider the Norfolk bid.
The 85.5% of shareholders who agree to initially tender in November 1996, before the opt out vote, imply that markets expect CSX will acquire Conrail. This further implies that the market does not believe at this point that Norfolk Southern will put forth what would be necessary to break the “no talk clause” in the CSX-Conrail agreement, and conversely influence the opt out vote-thus stopping the Conrail merger. Later as the vote approaches, the markets seem to be split on what the outcome will be.

As a shareholder I would vote to opt-out of the Pennsylvania anti-takeover statue because it takes away a win/win strategy. Evidently, CSX is worried that Conrail’s shareholders will not vote