...6) How does CSX intend to take control of Conrail? Explain how they intend to accumulate 50% of Conrail’s shares. As of October 15, 1996 CSX Corporation (CSX) intended to merge with Consolidated Rail Corporation (Conrail) by offering a two-tier deal, structured in the following manner. CSX would purchase 90.5 million fully diluted Conrail shares by paying $92.50 per share for the first 40% of the shares (the front-end offer) and would enter a share exchange for the remaining 60% of the required shares (the back-end offer). The front-end offer would be executed in two stages. The first stage, which began the day after the merger announcement, would be a cash tender offer to acquire 17.86 million shares at $92.50 per share (accounting for 19.7% of Conrail’s acquisition shares). The second stage, which could only be executed by mid-November once Conrail shareholders decided to void the “fair value” statute under Pennsylvania law, would be to acquire another 18.4 million shares at $92.50 per share (accounting for another 20.3% of Conrail’s acquisition shares) Following shareholder approval, and successful completion of the second cash tender offer, CSX would proceed with the back-end offer through a share swap of 1.85619 CSX shares for every 1 Conrail share in addition to an extra $16 of new convertible preferred stock. This two-tier structure of paying in both cash and stock not only allows CSX to abide by Pennsylvania’s antitakeover laws, but also saves on cash spent in...
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...the government initiated enormous investments in highway infrastructure, which resulted in the emerging of the trucking industry. Together with innovations in motor and tire technologies, the trucking industry began gaining significant market share of the freight transportation business from the rail road companies. As a result, the six largest railroads in the Northeast filed for bankruptcy. In response to the failures, the Congress passed the Stagger’s Rail Act of 1980 in order to deregulate the railroad industry, which resumed the mergers and acquisitions activity. The following analysis will investigate the economics of the offer for Consolidated Rail Corporation (Conrail) by CSX Corporation (CSX) and Norfolk Southern Corporation (Norfolk). The stand-alone bidders, CSX and Norfolk would value the target, Conrail, based on its fundamentals, however if both bidders are present they would enter price wars and legal battles, therefore this would inflate the offered price for the target. In particular the acquirers have to take into account of the opportunity cost of losing the bidding war (i.e. losing significant proportion of their revenue going forward) as calculated in Question 3. According to our analysis, the value of...
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...Conrail Case Study 1. Why does CSX want to buy Conrail? Why can CSX justify paying a premium to acquire Conrail? The Stagger’s Rail Act of 1980 has created a deregulated environment in which acquisitions are used to improve the competitive positioning of existing companies within the railroad industry. CSX is interested in Conrail for a couple of reasons. Primarily, CSX-Conrail merger would result in more than $8.5 billion in revenues and nearly 70% of the Eastern market. The combined entity would be able to control the railroads between the Southern ports (CSX), the Northeast (Conrail) and the Midwest (both). By having a full access to these markets the new company would be able to offer services to its clients for a lower price (economies of scale). Additionally, CSX’s acquisition of Conrail would prevent the company’s main competitor Norfolk Southern from gaining access to routes in the Northeastern United States. The Midwest market, where both firms were heavily present, would become a center of operations and the result would be a reduction of marginal costs. The new business would be able to faster load and unload goods with more line tracks available for transportation, higher co-operation and greater manpower, not to mention benefits from exchange of market knowledge and client base. Beside this there were potential to capitalize on the opportunity of being the first railroad company to connect the East to the West. * Geographically well placed * Network...
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...receives only 19.3% which avoids the Pennsylvania one-price-deal and instead allows the process to become a vote. Eventually 35.6% will be owned including the shares owned by management and therefore only 14% more is required to have an opt out approval for the second tier. Finally, by utilizing the second tier offer shareholders are enticed to vote for the opt out provision which ultimately gives the remaining 60% of shareholders a lower value for their share price. (b) 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)? There are four provisions in this CSX/Conrail Merger Agreement: 1. Conrail had to suspend its Poison Pill clause a defense mechanism that would have prevented the takeover. The Poison Pill would have...
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...CORPORATION CSX has put up a bid of $8.3 B in order to horizontally integrate with Conrail in order to increase the combined profitability based on perceived improvement in Synergies. A) Lower Cost Structure: Railroad is capital intensive industry with very high fixed cost. CSX-Conrail merger will lower company’s cost-structure by creating increasing economies of scale. Operating ratio of Conrail is 87.63% and CSX’s operating ratio is 81.99% (Exhibit 1). According to American Investment research report (Exhibit 10), proposed merger will bring operating ratio to 65 % (an 18.75% decrease). Both CSX and Conrail have low ROA (2.33% and 4.11%) compared to Norfolk’s ROA of 5.06 % (Table 6). If CSX and Conrail will achieve its projected revenue growth and cost-savings, CSX-Conrail will become more efficient than Norfolk. B) Gain Market Power : Based on revenue data from 1995 (Exhibit 1), CSK control 38.5%, Conrail controls 29.4% and Norfolk controls 32.1% of Northeast rail freight market. The proposed merger will allow CSX to control major share (~70 %) of the lucrative North Eastern rail market and enable them to take advantage of synergies in the space. In addition, CSX – Conrail can further improve on its market position by limiting Norfolk’s access to long-haul routes either from south or Midwest. MECHANICS OF THE CSX – CONRAIL DEAL CSX has offered a two-tiered offer for the stocks of Conrail. For the first 40% of the shares (the front-end), stockholders will get $92.50 and...
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...Conral CSX case Executive Summary Conrail has received two acquisition bids from CSX and Norfolk Southern. Introduction Conrail and CSX, the nation’s first and third largest railroads, have decided to participate in a merger of equals. CSX has offered to acquire Conrail in a two tiered deal. The first 40% of tendered Conrail shares will be bought at a price of $92.50 while the remaining 60% will be acquired through a stock swap at a ratio of 1.8561921 (CSX:Conrail). In the midst of this offer, a hostile Bid comes in from Norfolk Southern, a competitor in the Industry. Norfolk Southern offers ____ Analysis Case A, Question 1: Why is CSX interested in Conrail? How much should CSX pay for Conrail? The Stagger’s Rail Act of 1980 has created a deregulated environment in which acquisitions are used to improve the competitive positioning of existing companies within the railroad industry. CSX is interested in Conrail for a couple of reasons. Primarily, CSX would like to acquire Conrail because its routes are complementary to their own, allowing the combined company to provide “long-haul, contiguous, and therefore low-cost service between the Southern, Eastern, and Mid-Western parts of the United States.” Additionally, CSX’s acquisition of Conrail would prevent the company’s main competitor Norfolk Southern from gaining access to routes in the Northeastern United States. This would leave Norfolk Southern at a large strategic disadvantage. Lastly, the...
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.... Why is CSX interested in acquiring Consolidated Rail Corporation (Conrail)? Describe thearguments for the offer being motivated by synergies, as well as arguments for the motivationto pre-empt a bid by Norfolk. The 1999 acquisition of Conrail, jointly split with CSX, was perhaps the most important and critical time in the company’s history. If CSX had been allowed to purchase Conrail outright, not only would NS have been entirely surrounded but also it could never againeffectively compete with CSX, even if it was able to run a railroad much more efficientlyand effectively than CSX. NS had been interested in Conrail for some time because itwould add an important addition the railroad needed, direct lines to the markets of NewYork City and Philadelphia which Conrail had been effective in developing and exploitingby becoming a intermodal (i.e., the movement of ship containers which can be movedvia over-the-road trucks as well) juggernaut moving containers between Chicago andthe Northeast.Not only was intermodal the wave of the future but NS also did not contain an effectivebusiness in such and had CSX gained complete control of the Northeast it would onlyhave been a matter of time before NS was gobbled up as well, mostly likely by aWestern road (by rules of competition, CSX would not have been allowed to purchaseNS and control the entire Eastern rail market).So, thus began the battle for Conrail in the mid-1990s when CSX announced itsintentions of purchasing the railroad...
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...and the tax bill that will result, if the taxation exemption requirement are not respected, are not so huge; - Avoid the Pennsylvania’s Business Corporation law. The premium that CSX are willing to pay in the two tier of the transaction isn’t the same, bigger with the tender offer, in order to take the control of the firm, and smaller in the back-end merger, this is not allowed unless the shareholder vote for the opt out of the statute before CSX would acquire more than the 19,9 % of Conrail. After the first stage of the transaction is completed CSX will own a 19,7 % stake of Conrail, and considering all the parties that support the merger ( management of Conrail and the employee trust ), CSX would control 35,50 % of the acquisition share and will need only another 14,60 % of the target shares to vote in favor of the opting out for it to pass. Ones the shareholders approved the opt out CSX could implement the second stage of the front end offer in order to acquire another 20,30 % stake of Conrail....
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...more 53” without much forecasting into the future of how this would ultimately affect the rail transportation industry. Norfolk Southern began operations in 1838 which connected two points in Virginia. Growth occurred rapidly for the company when they gained and additional 14 US states to service. President Mahone was responsible for the linking of Norfolk and Petersburg, Southside, Virginia, and Tennessee. A partner in one of the acquired firms Kimbell was responsible for creation of the Pochantas Coalfields West Virginia which created lines leading the various states including Ohio. When Virginia merged with Southwest this was considered an innovative and new way of the rail transportation industry with Northwest leading the trade. Conrail, which was originally the first commercial railroad in America, entered the passenger rail transportation industry. Both freight and passenger rail service grew dramatically then dramatically decreased after World War II. Much of the rail freight transportation lost a large amount of their business to the road transportation industry. Around 1980 The Stagger Rail Act made it possible for rail freight to become...
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...Stern School of Business New York University Cases in Financial Management B40.2345 Tony Marciano amarcian@stern.nyu.edu KMC 9-87 First Class Assignment For the first class meeting, I will expect you to prepare the INTEL case in your course packet. You should use the detailed questions given in the course packet to organize your thoughts and analysis about the case. Our class discussion will cover the issues raised by the questions, i.e.: (i) What capital structure makes sense? (ii) What would be the best way to disburse cash? (iii) Describe the advantages and disadvantages of each alternative considered by management? In addition to reading and analyzing the Intel case, you should come to class with a one to two page memorandum that summarizes your analysis. You may team up with one or two classmates and hand in one memorandum for the group. (I.e., I will accept a memorandum with up to, but not more than, three names on it.) Stern School of Business New York University Cases in Corporate Finance Marciano Tony Course Syllabus TENTATIVE I. Course Materials A. Packet I (Required): 1. Syllabus 2. Assignments 3. Cases 4. Readings B. Text (Very Highly Recommended but probably have it already): Brealey Myers Allen, Principles of Corporate Finance, McGraw Hill. (BM) You may already have this text. C. There will be some miscellaneous handouts during the course. AND THERE ARE FILES ON BLACKBOARD WHICH CONTAIN SPREADSHEETS FOR THE CASES WE WILL...
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...Agricultural Marketing Service February 2014 Railroad Concentration, Market Shares, and Rates Marvin Prater • Adam Sparger • Daniel O’Neil, Jr. Summary Since the passage of the Staggers Act in 1980, many railroads have merged. The market share of Class I railroads has increased since then, while the number of Class I railroads has fallen to only seven. Through railroad mergers, rail-torail competition has been reduced, railroad market power has increased, and rail costs have fallen by over half in real terms. Over much of this period, most of these reduced costs were passed on to shippers as savings through lower rates. Since 2004, however, average rail rates per ton-mile for all commodities have climbed 36 percent, negating some of the savings over the period. Although some of these real rail rate increases have contributed to record rail profitability and capital investment, most of the rate increases are the result of increased railroad costs; real rail costs, adjusted for productivity, increased 29 percent during the same period. Although deregulation of railroads in 1980 produced more than 550 regional and local railroads throughout America, the 7 Class I railroads originated well over half the grain and oilseed shipments in 2011. Introduction For many years, railroads have been merging in order to increase efficiency and develop financially stable rail businesses large enough to compete with other modes of transportation, mostly trucks and barges. Following...
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...CSX Corporation is one of the nation’s leading transportation suppliers. The company’s rail and intermodal businesses provide rail-based transportation services, including traditional rail service and the transport of intermodal containers and trailers. CSX Corporation is the parent company of several direct and indirect wholly-owned subsidiaries, including: CSX Intermodal Terminals, Inc.; CSX Real Property, Inc.; CSX Technology, Inc.; CSX Transportation, Inc.; Total Distribution Services, Inc. and TRANSFLO Corporation. CSX employs around 30,000 people, of which about 26,000 are union. These employees perform their duties in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX’s rail network infrastructure stretches westward to Chicago, southward to New Orleans, and northward to Syracuse. CSX’s rail operations can be grouped into four areas based on geography. The Coal Network connects coal mining operations in the Appalachian regions with industrial areas in the northeast and mid-Atlantic. The Interstate 90 corridor links Chicago and the Midwest to metropolitan areas in New York and New England. This route supports high speed intermodal, automotive and merchandise service. The Interstate 95 corridor connects Charleston, Jacksonville, Miami, and other southeastern cities to the major northeastern cities like Baltimore, Philadelphia, and New York. The Southeastern Corridor runs between western gateway cities like Chicago, St. Louis, and...
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...Regulations of Transportation Industries History: In 1821, Englishman, Julius Griffiths was the first person to patent a passenger road locomotive. In September, 1825, the Stockton & Darlington Railroad Company began as the first railroad to carry both goods and passengers on regular schedules using locomotives designed by English inventor, George Stephenson. Stephenson's locomotive pulled six loaded coal cars and 21 passenger cars with 450 passengers over 9 miles in about one hour. George Stephenson is considered to be the inventor of the first steam locomotive engine for railways. Richard Trevithick's invention is considered the first tramway locomotive, however, it was a road locomotive, designed for a road and not for a railroad. In 1812, he became a colliery engine builder, and in 1814 he built his first locomotive for the Stockton and Darlington Railway Line. Stephenson was hired as the company engineer and soon convinced the owners to use steam motive power and built the line's first locomotive, the Locomotion. In 1825, Stephenson moved to the Liverpool and Manchester Railway, where together with his son Robert built (1826-29) the Rocket. Colonel John Stevens is considered to be the father of American railroads. In 1826 Stevens demonstrated the feasibility of steam locomotion on a circular experimental track constructed on his estate in Hoboken, New Jersey, three years before George Stephenson perfected a practical steam locomotive in England. The first railroad...
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...Top 10 Corporate Information Technology Failures AMR Corp., PROJECT: “Confirm” reservation system for hotel and system for Budget Rent A Car Corp., hotel and rental car bookings Hilton Hotels Corp., Marriott International Inc. WHAT HAPPENED? After four years and $125 million in development, the project crumbled in 1992 when it became clear that Confirm would miss its deadline by as much as two years. AMR sued its three partners for breach of contract, citing mismanagement and fickle goals. Marriott countersued, accusing AMR of botching the project and covering it up. Both suits were later settled for undisclosed terms. Confirm died and AMR took a $109 million write-off. Snap-On Inc. PROJECT: Conversion to a new order-entry system from The Baan Co. WHAT HAPPENED? Despite three years of design and implementation, a new order-entry system installed in December 1997 costs the tools company $50 million in lost sales for the first half of 1998. Orders are delayed, inventory is miscounted. Snap-On’s operating costs soar 40%, mainly to cover costs of extra freight and temporary workers. Franchisees, frustrated because they can’t operate the new software, turn to Snap-On competitors. Company profits for the period sink 22% compared to 1997. FoxMeyer Corp. PROJECT: SAP ERP system WHAT HAPPENED? A bungled enterprise resource planning (ERP) installation in 1996 helped drive FoxMeyer into bankruptcy, the drug distributor claims in lawsuits still pending against SAP AG, SAP America Inc...
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...NJ Transit Paper Many tactics have changed in the twenty-first century we all know that the competitive landscape has almost completely changed. We have amazing leadership examples that have been left behind to help the present day remain successful business empires. This implies that there will always be traditional remnants of competitive advantage. When the economies advertising used to tip the scales and have a greater advantage over competitors in the past. It simply isn’t that way anymore and even the “little man” can afford amazing advertisement campaigns with little expensive out of their revenue. So has for NJ transits predecessors advertising was key for them in order to succeed as well as it was in order for NJ Transit making large advertising budget not nearly has an effective competitive weapons an effective weapon in the past. As the weapons of them game seem to rapidly change and seem to be almost completely unpredictable at times this new competitive advantage makes companies even larger ones adopt new ways of thinking. The new competitive mind set must value flexibility, speed, innovation, integration, and the challenges that evolve from constantly changing conditions (Chapter Notes). A term often used to describe the new realities of competition is hyper competition, a condition that results from the dynamics of strategic moves and countermoves among innovative, global firms: a condition of rapidly escalating...
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