Case Study: The Acquisition of Consolidated Rail Corporation (Part B)

Your case analysis must address the following specic questions: 1. Why did Norfolk Southern make a hostile bid for Conrail? 2. In a bidding war for Conrail, who should be willing to pay more, Norfolk Southern or CSX? In order to answer the question, follow these steps: (a) Estimate the value of net synergies (using the WACC method of valuation) that would result from a CSX-Conrail merger and a Norfolk SouthernConrail merger, respectively. As in case A, assume that the market risk premium is 6.5% and that the debt beta of all three rms is 0.1. (b) What other motives could there be in determining the two bidders valuations? Notice the dierence between Exhibit 7 in case A and Exhibits 6a and 6b in case B. (c) Would you reect the break-up fee in Norfolk Southerns valuation of Conrail? Why or Why not? If yes, how? (d) Would you reect the lock-up provision in Norfolk Southerns valuation of Conrail? Why or Why not? If yes, how? (e) Based on your analysis, what are the maximum prices that CSX and Norfolk Southern, respectively, would be willing to oer for each share of Conrail? 3. Why does CSX refer to Norfolk Southern bid as a non-bid? Do you agree? In order to answer this question try to evaluate Norfolks oer given the time delay related to it due to the anticipated proxy ght. 4. As a shareholder, would you vote to opt-out of the Pennsylvania anti-takeover statute? What do the capital markets expect will happen? 5. Do market regulations such as the Pennsylvania anti-takeover law protect shareholders?