Acquisition of Conrail

1. CSX is interested in buying Conrail because they feel their merger would represent a merger of equals and together they will be able to provide better value to their customers and shareholders. They will be able to control the market better and commit to their promise of safety, operating excellence and superior service. They may also feel that if they don’t merge with Conrail now, someone else may (Norfolk).

Terminal= [Last year’s CF * (1+g)]/ [(EPS/Price)-g)] [(195million*1.03)]/ [(4.91/85.13) – 0.03] =6,310,679,610

Compound Annual Growth Rate= [Ending Value/Beginning Value] ^ (1/years) – 1[8,387,000/7,315,000] ^ (1/5) – 1=1.15^0.20 – 1= 0.03

2. A. CSX makes a two-tiered offer because of the Pennsylvania Business Corporation Law. In order to be complaint with the regulations, CSX made a two-tiered offer with different prices. Conrail shareholders would have to opt-out of the stature before CSX could buy 19.9% of the shares.

B. The provisions in the merger agreement are rationalized because it protects all parties involved in the merger from getting the short end of the stick, so to speak. The break-up provision ensures that the company to be acquired doesn’t back out of the deal, after the merger has been announced. The no-talk clause also protects the acquiring company. The poison pill clause is very important as it ensure the shareholder still some control over the company they have invested in and protects their rights.

3. It would depend on how many shares I hold in the company. I would tender my shares to CSX because they are offering me a large return on a smaller investment (assuming $71/share)