Acquisition of Consolidated Rail Corp B Case Solution

Case Solution

Eight days after CSX introduced it might buy Consolidated Rail (Conrail) for $88.65 per share, Norfolk Southern developed a hostile $100 per share bid for Conrail. Over the following several several days, the chance acquirers upped their bids while changing critique inside the popular press, compelling experts to that certain in the nastiest takeover battles in the the 19 nineties. The case is occur The month of January 1997, before Conrail traders are scheduled to election round the recommended deal with CSX. It examines the recognition toward consolidation inside the U.S. railroad industry, the investing in an offer war for Conrail, as well as the various provisions in Pennsylvania's anti-takeover laws and regulations and rules, which restrict industry for corporate control. Furthermore, it explores the correct and financial implications from the investing in an offer war and challenges the concept that failure to obtain can be a zero internet present value endeavor. Finally, it examines the smoothness of and economic cause for manipulating the industry for corporate control.

Excel Calculations

Discounted Cash Flow Valuation

   Market Value of Conrail (before acquisition)  

      Company Value Before Synergies ($)

  Value of Synergies for CSX and Norfolk  

      Discount Rate Calculation

          Riskfree Rate, Beta, Market Risk Premium, Return on Equity

       Norfolk - Cash Flows From Synergy ($ millions)

           Total Gain from Synergies, Avoidance of Loss, Net Gain After Tax (35% tax rate), Terminal             Value, PV of Gain from Synergies

  Norfolk - Total Value of Synergies ($)

Valuation Summary

CSX - Total Acquisition Value ($)

CSX - Acquisition Price per Share ($)

Norfolk - Total Acquisition Value ($)

Norfolk - Acquisition Price per Share ($)

Questions Covered

Why did Norfolk Southern make a hostile bid for Conrail?

How much is Conrail worth? In a bidding war, who should be able to pay more, Norfolk Southern, or CSX?Please determine the price that each party should be willing to pay in a bidding war.

Why does CSX refer to Norfolk Southern’s bid as a “non-bid”? What should Norfolk Southern do as of mid-January 1997?

As a shareholder would you vote to opt-out of the Pennsylvania anti-takeover statue?What do the capital markets expect will happen?

What are the costs and benefits of regulating the market for corporate control through statutes such as Pennsylvania’s opt-out law?