On 15 october, 1996, a Virginia native CSX and a Pennsylvania native Consolidated Rail (Conrail), the first and the third most prominent railroads of the eastern US made public their decision to form a friendly merger deal that would be of value $8.3 billion. This contract was in relation to the industry trend towards integration and consolidation, and had the potential to alter the competitive activities and nature of the eastern rail industry. Students, who would be playing the role of shareholders, must determine whether they would want to offer the stock in the front end of a two-tier take-over proposal. In order to determine this, they must perform valuation for Conrail as a takeover, and comprehend th nature of CSX’s proposal.
Discounted Cash Flow Valuation Approach
Company Value Before Synergies ($)
Value of Synergies
Discount Rate Calculation
Riskfree Rate, Beta, Market Risk Premium, Return on Equity
Cash Flows From Synergy ($ millions)
Total Value of Synergies ($)
Total Acquisition Value ($)
Acquisition Price per Share ($)
Offer Price Ratio, Enterprise Value Ratio
Conrail Value Based on Multiples
Multiple Value, Implied Share Price ($)
Multiple Value ($ millions), Implied Enterprise Value ($ millions), Debt Value ($ millions), Implied Equity Value ($ millions), Implied Share Price ($)
Average Share Price ($)
Range of Share Price ($)
Why does CSX want to buy Conrail? How much should CSX be willing to pay for it?
Please analyze the structure of CSX’s offer for Conrail.
Why did CSX make a two-tiered offer? What effect does this structure have on the transaction?
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)?
3. As a Conrail shareholder would you tender your shares to CSX at $92.50 in the firststage