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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)
{text:list-item} {text:list-item} {text:list-item} {text:list-item} {text:list-item} 3 a) Why did CSX make a two-tiered offer?
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...