Acquisition of Consolidated Rail Corp A Case Solution

Case Solution

On October 15, 1996, Virginia-based CSX and Pennsylvania-based Consolidated Rail (Conrail), the third greatest railroads inside the eastern United states . States, introduced their intent to merge in the friendly deal worth $8.3 billion. This deal was part of a company-wide trend toward consolidation and certain to affect the competitive dynamics in the Eastern rail market. Students, as traders, need to research if you should tender shares to the front-finish of these two-tiered acquisition offer. To decide on this, they need to value Conrail becoming an acquisition target and know the structure of CSX's offer.

Excel Calculations

Discounted Cash Flow Valuation Approach

 Company Value Before Synergies ($)

 Value of Synergies  

 Discount Rate Calculation

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

 Cash Flows From Synergy ($ millions)  

 Total Value of Synergies ($) 

 Total Acquisition Value ($) 

 Acquisition Price per Share ($)

Multiples Approach

 Competitor Information 

     Offer Price Ratio, Enterprise Value Ratio

 Conrail Value Based on Multiples

     Multiple Value, Implied Share Price ($)

    Multiple Value ($ millions), Implied Enterprise Value ($ millions), Debt Value  ($ millions),     Implied Equity Value  ($ millions), Implied Share Price ($)

 Average Share Price ($) 

 Range of Share Price ($)

Questions Covered

Why does CSX want to buy Conrail? How much should CSX be willing to pay for it?

Please analyze the structure of CSX’s offer for Conrail.

Why did CSX make a two-tiered offer? What effect does this structure have on the transaction?

What are the economic rationales for and the takeover implications of the various provisions in the merger agreement (i.e., no-talk clause, lock-up options, break-up fee, and poison pill shareholder rights plan)?

3. As a Conrail shareholder would you tender your shares to CSX at $92.50 in the firststage

offer?