. 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. Through an aggressive bidding war NSwas able to not only buy into Conrail but also was able to take the most profitableroutes.
CSX-Conrail's "beautiful fit" will create the nation's biggest railroad, with combined revenues of $14billion and 29,600 miles of track in 22 states, stretching from Miami to Chicago to Boston. Snowbelieves the $8.4 billion he's paying for Conrail will result in lower prices and more efficient service for customers--not to mention, of course, fatter profits and a higher share price for stockholders. It's all part of a grand strategy to make CSX more competitive not only with other railroads but also with truckers--a strategy that Snow hopes will help CSX stay a major player in transportation well into the21st century.Not everyone is as ecstatic as Snow. Norfolk Southern, a competitor that also operates in the Southeast, believes the deal threatens the delicate balance of power in the railroad industry, which has gone through a massive consolidation in recent years. Norfolk is likely to challenge the deal,which must be approved by government regulators. CSX's customers, companies that shipeverything from coal to chemicals to autos, are also concerned that CSX would become a virtualmonopoly in the East and, despite what Snow says, they worry about what that might do to pricing. "The limited number of players in the rail industry keeps going down," says Robert Voltmann, director of policy at the National Industrial Transportation League, a trade organization representing 1,500 shippers. "Shippers are concerned."