Why Is Conrail Being Known As A Scarce Jewel

1. Why is Conrail being termed as a “scarce jewel”? (4mks)
Conrail was regarded as the railroad industries diamond in rough since it was the only Class 1 railroad that operated in the profitable Northeastern market. In comparison to its peers, the revenue obtained per mile, and the revenue obtained per carload and ton originated were the highest. However, due to higher operating costs than its peers, Conrail also happened to be the least profitable of the three northeastern companies. This makes Conrail a company that, with proper management and cost cutting intitatives, could easily become extremely profitable and thus a welcome acquisition. Furhtermore, Conrail also played a major part in connecting Northeastern cities with their mid western

Also having lower leverage ratios than CSX, Norfolk was in a better position to make a bid and increase it liabilities on its balance sheet. If a Norfolk-Conrail merger to take place, CSX would struggle to compete. It was in CSX’s interest to aquire Conrail and complete the transaction as swiftly as possible so as to prevent Norfolk Southern from doing the same.
b. Norfolk Southern (3.5mks)
Prevent CSX-Conrail merger
Being a class I railroad company, it high operating margins coupled with the significant room for improvement in terms of cost cutting and profit increase, a merger between Conrail and CSX would prove disastrous for Norfolk Southern. The new company, with revenues of 8.5 billion a year would be difficult for Norfolk South to compete with. This, and the fact that the new company would have a market share of 70% in the northeastern markets meant that Norfolk had no other choice but to initiate a hostile takeover, or have its operation in the northeastern markets slowly phased out by the new competition.
This coupled with the fact that the CSX-Conrail merger , though economies of scale would allow the new company to cut costs, charge less and in turn eat into Norfolk Southerns business and market share left Norfolf with no other choice but to literaly fight for its own

Why does CSX refer to Norfolk Southern’s bid as “non-bid”? (4mks)

5. What should Norfolk Southern do as of 17th January 1997? (3mks)

6. As a shareholder, would you vote to opt-out of the Pennsylvania antitakeover statute? Explain(3mks)
Yes I would. Norfolk stands to make better use of the synergy potential of the merger. Also, theblended offer of $115 by Norfolk is higher than that offered by CSX, $102.16 and offers me a much higher premium per share. This will give me a 61.9% increase in value from 14 october 1996 where the share price was %71 to 16 january 1997 where Norfolk is offering %115 per share.
7. Highlight the costs and benefits of regulating the market for control through statutes such as the Pennsylvania antitakeover law? (5mks)
In terms of benefits, the antitakeover law protects shreholders nad companies from hostile takeovers. It ensures that long term shareholder goals are prioritized and that sharholders always get a fair price for their investments.
In terms of cost, the antitake over law makes a take over more xpensive for bidders. This ensures that managers prioritize on the achievement of a companies goals as well as shareholder profits.

8. Using Exhibit 8 blended value as per 16th January, 1997, determine the premium using CSX and Norfolk Southern’s offers