...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 outright...
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...Question 1 Railroading industry overview: The Railroad revolution in the United States began in the early 1800s. The developed infrastructure was used for freight transportation business. In the mid-1800s the industry experienced explosive growth, followed by significant consolidation in 1870. The rail road companies initiated expansion through acquisitions in attempt to reduce marginal costs and increase their market share. As a result of this competition, a number of cartels were formed; therefore the federal government intervened and established regulation on railroad mergers, infrastructure construction and divestments. On the other hand, 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...
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...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 toparticipate in a merger of equals. CSX has offered to acquire Conrail in a two tiereddeal. The first 40% of tendered Conrail shares will be bought at a price of $92.50while 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 fromNorfolk Southern, a competitor in the Industry. Norfolk Southern offers ____ Analysis Case A, Question 1: Why is CSX interested in Conrail? How much should CSX payfor Conrail? The Stagger’s Rail Act of 1980 has created a deregulated environment in whichacquisitions are used to improve the competitive positioning of existing companieswithin the railroad industry. CSX is interested in Conrail for a couple of reasons.Primarily, CSX would like to acquire Conrail because its routes are complementaryto their own, allowing the combined company to provide “long-haul, contiguous,and therefore low-cost service between the Southern, Eastern, and Mid-Westernparts of the United States.” Additionally, CSX’s acquisition of Conrail would preventthe company’s main competitor Norfolk Southern from gaining access to routes inthe Northeastern United States. This would leave Norfolk Southern at a largestrategic disadvantage. Lastly, the combination would provide cost synergies andreductions, even...
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...cars. At 2:53 a.m. Amtrak’s only transcontinental passenger train, the Sunset Limited, plunged into Big Bayou Canot, killing 47 passengers. Eight minutes earlier at 2:45 a.m., a towboat, pushing six barges and lost in a dense fog, unknowingly bumped into the Big Bayou Canot Bridge knocking the track out of alignment. The train, traveling at a speed of 72 mph in the dense fog, derailed as a result, burying the engine and four cars five stories deep in the mud and muck of Big Bayou Canot.4,7,8,10,12,13 Bruce Barrett, a locomotive engineer, has described what might have been occurring in the cab of Amtrak engine Number 819 prior to the wreck.2 This scenario is based upon my 17 years’ experience as a locomotive engineer on a major western railroad and upon the compilation of bits and pieces of data from public records and accounts of the accident. Engineer Michael Vincent was at the controls of the two-week-old General Electric “AMDCopyright © 1999 by the Case Research Journal, H. Richard Eisenbeis, Sue Hanks, and Bruce Barrett. All rights reserved. 103” locomotive. Engineer Billy Rex Hall was in the cab with Vincent along with Ernest...
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...2:53 a.m. Amtrak’s only transcontinental passenger train, the Sunset Limited, plunged into Big Bayou Canot, killing 47 passengers. Eight minutes earlier at 2:45 a.m., a towboat, pushing six barges and lost in a dense fog, unknowingly bumped into the Big Bayou Canot Bridge knocking the track out of alignment. The train, traveling at a speed of 72 mph in the dense fog, derailed as a result, burying the engine and four cars five stories deep in the mud and muck of Big Bayou Canot.4,7,8,10,12,13 Bruce Barrett, a locomotive engineer, has described what might have been occurring in the cab of Amtrak engine Number 819 prior to the wreck.2 This scenario is based upon my 17 years’ experience as a locomotive engineer on a major western railroad and upon the compilation of bits and pieces of data from public records and accounts of the accident. Engineer Michael Vincent was at the controls of the two-week-old General Electric “AMDCopyright © 1999 by the Case Research Journal, H. Richard Eisenbeis, Sue Hanks, and Bruce Barrett. All rights reserved. 103” locomotive. Engineer Billy Rex Hall was in the cab with...
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...CASE A CSX ACQUISITION OF CONSOLIDATED RAIL 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...
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...Team Project CSX Railroad Team 24: Section 1: Company and Industry Background CSX is a rail based transportation company that carries the nation’s commodities like coal, agricultural products, merchandise, and other materials. Headquartered in Jacksonville, FL, CSX serves 23 states across the eastern United States and parts of Canada. The 21,000 mile rail network reaches more than 70 water ports throughout the region and operates nearly 4200 locomotives that carry roughly 190,000 freight cars and containers daily. CSX employees over 31,000 people and realized just over $12 billion in revenue in 2013. (Ward, 2012) The railroad industry in America is divided by the Mississippi river. Union Pacific and Burlington Northern & Santa Fe dominate the west with CXS and Norfolk Southern to the east. Union Pacific is the largest railway company in the country. It encompasses 23,000 miles of track in 23 western states. Union Pacific ended 2013 with almost $22 billion in revenue. Burlington Northern & Santa Fe is the second largest railway in the country and is owned by Berkshire Hathaway with $21 billion in revenue. CSX falls in at number three and Norfolk Southern makes the list at number four. Norfolk Southern is the only real rail competitor to CSX, sharing the eastern part of the country. Norfolk Southern’s annual revenue is similar to CSX at $11 billion with around 31,000 employees. (Henage, 2013) Starting in 1827, CSX’s history dates back to the beginning...
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...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 Resilience of the Railroad Industry Lindsay Millar, Jessica Settlecowski & Mike Gawel MGT 674 March 23, 2013 The history and resilience of the railway industry is rather remarkable as it has helped shape the landscape and the formation of the United States. Railways allowed colonies to settle in the West and the country suddenly became connected from coast to coast. This encouraged the exchange of goods and stimulated the development of towns and communities along track lines. Soldiers were shipped directly to the forefront of battleground lines and supplied with a constant flow of ammunition. Most importantly, trains were the steam engine that fueled the industrial revolution. The railway industry’s history is rich with experience and wise with age, as it has survived many seemingly insurmountable obstacles, including: the Great Depression, civil war, the advent of automobiles and airplanes and federal regulation. Federal regulation took the largest toll on the industry as it restricted the ability of the industry to adapt to future demands and market requirements. The growth of rail was stunted by 100 years of federal regulation and since the Staggers Act of 1980 which led to deregulation, the industry has been struggling to recover. After the implementation of the Staggers Act the industry has undergone serious reconstruction which has increased the overall performance and reliability of rail. As service levels improve the demand for low rates and large capacity...
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...Stuff for SWOT on CSX http://www.bls.gov/cps/industry_age.htm ^Avg. age of rail worker source^ The Bureau of Labor Statistics http://www.fool.com/investing/general/2013/10/07/rail-stocks-battle-lower-coal-volumes.aspx ^coal production and volumes source^ Daniel Ferry * Coal is the most important commodity to the U.S. railroad industry, but U.S. coal production has fallen to its lowest level in 20 years. * Coal reached its peak in 2008, but it still made up more than 40% of tonnage and more than 20% of revenue in 2012. * Rock-bottom natural gas prices have made coal a less economically competitive power source, while environmental regulations have upped compliance costs for coal plants and made the prospect of new coal-fired plants unlikely. As a result, Class I railroads' coal shipments have fallen 18% by tonnage since 2008. They're likely to fall lower still. * That's not all bad news. While coal is big business for railroads, it's not very profitable. Measured by revenue per ton-mile, a metric that takes both weight and distance into account, coal is by far the least lucrative commodity that railroads ship, bringing in an average of just 2.88 cents per ton-mile in 2011, compared with a commodity average of 5.78 cents, more than double coal. Moving coal is certainly high-volume for the railroad stocks, but it's not high-margin. * CSX, which has most of its trackage in the Eastern United States and is therefore heavily exposed to Appalachian coal shipments...
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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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...Executive Summary Union Pacific is the largest freight railroad in North America. In 2007 they transported over one trillion ton-miles of freight earning revenues of $16.28 billion. They operate on 32,000 miles of rail covering the United States west of the Mississippi. Union Pacific is a successful firm both externally and organizationally. The Class I Freight Railroad industry encompasses the seven largest railroads in North America. In the U.S., where Union Pacific operates, Class I Freight Railroads move more than 40% of the freight transported per year, measured in ton-miles. The industry is in the maturity stage, experiencing slow consistent growth. For companies in this industry, it implies tightened operations and good human resource management are essential for success. The industry incumbents benefit from high barriers to entry due to the amount of capital requirements. Substitutes play a moderate role in the industry, while buyers and suppliers are on neutral ground with the railroads. Lastly, rivalry varies from area to area, but is average as a whole. This is shown in the analysis of captive versus noncaptive customers. Union Pacific mainly transports commodities in five primary industries; agriculture, automotive, chemical, energy, and industrial. These customers look for competitive pricing, on time delivery, and good customer service. In order to be successful in this industry, a railroad must have the resources to serve all the needs of these customers. Since...
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...As I slowly opened my eyes it had felt like I had awoken from a dream, a pleasant dream where there were no wrongs, sins or problems. But something wasn’t right about this morning, something was different. When the fuzziness in my eyes gradually began to clear up I realized it wasn’t morning and I hadn’t woken up from a dream. Like in a silent movie there was utter chaos surrounding my heavy body lying on one of the sides of a tilted rail car. I couldn’t comprehend what was going on because the piercing sound of silence followed by a sharp ringing echo in my head. I tried to blink a small number of times to try to start my brain up again. “Where am I? What had just happened?” I checked my body for wounds or blood but thankfully all I found were a couple scrapes on my head. The railcar I was lying in had almost split in half. Within the wreckage there was blood and bodies intertwined between pieces of metal. It became almost too much to bear when I could finally comprehend the screams and moans of the badly injured As I analyzed my immediate surroundings I pieced together the smell of something burning, shredded metal, blood and body parts and crushed railway car in the conclusion that I had been in a train crash. It was a cold February night and I was on a train headed to Bay Shore with my daughter Rita. The car rattled and squeaked under the heavy pressure of the full train. The car was surprisingly crowded for ten in the evening. I gripped the back of the seat in front of me...
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...Managerial Accounting 20 May 2012 AC 505 Case Study II: A. Break-even point in passengers and revenues per month = 35,000; $5,600,000 1) Per Passenger Sales $160 Variable Expenses 70 Unit Contribution Margin $90 Fixed expenses ÷ Unit CM = $3,150,000 ÷ 90 = 35,000 passengers in break-even point 2) Contribution Margin Ratio (CM Ratio) = Contribution Margin ÷ Selling Price = $90 ÷ $160 = .5625 Break-even point in dollars = Fixed costs ÷ CM Ratio = $3,150,000 ÷ .5625 = $5,600,000 B. Break-even point in number of passenger train cars per month = 556 Number of seats per train car = Average load factor × Number of seats per train car = .70 × 90 = 63 passengers per train on average Passengers in break-even point ÷ Number of seats per passenger train = Number of passenger train cars per month to break-even 35,000 ÷ 63 = 555.5 or 556 train cars C. Monthly break-even point in number of passenger cars when fare is raised to $190 = 486 Number of seats per train car = Average load factor × Number of seats per train = .60 × 90 = 54 passengers per train on average Per Unit Sales $190 Variable Expenses 70 Unit Contribution Margin $120 Fixed Expenses ÷ Contribution Margin = $3,150,000 ÷ $120 = 26,250 passengers to break even Break-even point in passengers ÷ average passengers per train = Break-even point in train cars = 26,250 ÷ 54 = 486.11 or 486 train cars to break-even D. Break-even point in passengers...
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...I am Lucy, a fourteen year old slave girl who is going to escape slavery. Let's start on my journey to escaping as a slave. I lived on the King Plantation in Kentucky. The owners had to sell the us at a slave auction because plantation was in bankruptcy. I did not want to get sold at the auction. Before I ran away, I stole some food from the slave and plantation garden in the middle of the night and then I ran. When I ran away from the plantation one night, I had to be careful not to be spotted by a patroller on the backroad. I had to overcome some obstacles on my runaway journey. I had to steal a boat to sneak across the river. On my escape, I did not stop to help someone or ask for help with my journey, I did not want to risk being caught....
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