Corporate Finance Case

Rotman Commerce, University of Toronto

RSM433H1S

Advanced Corporate Finance

Professor Sergei Davydenko

Assignment #1

The Acquisition of Consolidated Rail Corporation (A), (B)

February 8, 2010

1. Why is Consolidated Rail a takeover target? Discuss the sources of potential gains from the proposed CSX-Conrail merger.

Why is it a takeover target?

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Value creation from the merge

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(Source: “chapter 6: Theories of Mergers and Tender Offers from takeovers”, Takeovers, Restructuring, and Corporate Governance)

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3 b*) *Discuss the anti-takeover provisions which were i*n a* place at Conrail before the bid was made. Who benefits and who loses from these provisions?

The "fair value" statute The law required bidders holding 20% or more of a company's stock to offer all shareholders the same price unless target shareholders explicitly voted to nullify this provision. This statute benefits target shareholders – in this case, Conrail – since it gives them the option to choose whether to get the same price or different prices for their shares. This implies a greater bargaining power for the shareholders, and acts against the bidder, CSX.

The "voting rights" statute

the "constituency" statute

*3 c) *What are the economic rationales for putting in place the “break-up fee” and

the “lock-up option” for CSX and the “no-talk clause”? Who benefits and who

loses from the use of these measures?

4. Why did Norfolk Southern make a hostile bid for Conrail?

*5. How much is Conrail worth* to CSX and to Norfolk Southern? In a...