Norfolk Southern ups bid for Conrail $110 a share tops CSX's latest offer

November 09, 1996|By Suzanne Wooton | Suzanne Wooton,SUN STAFF

In the latest skirmish in the battle over Conrail Inc., Norfolk Southern Corp. boosted its hostile takeover bid to $110 a share yesterday, topping the latest offer by friendly suitor CSX Corp. How high the bidding could go remained uncertain.

"This was inevitable, but I don't think that Norfolk is going to go any higher," said Thom Brown, rail analyst for Rutherford Brown & Catherwood, a Philadelphia investment firm. "This is the outside limit of what the thing would be worth."

The bid by Norfolk Southern yesterday is the latest in a series of dramatic back-and-forth moves between the East Coast's largest railroads to acquire Conrail and its lucrative Northeast territory.

The battle began Oct. 15 when CSX unveiled its $8.4 billion cash-and-stock agreement to buy Philadelphia-based Conrail. A week later, Norfolk Southern fired back with its hostile $100-a-share all-cash bid, only to see CSX raise the cash portion of its bid from $92.50 a share to $110 a share earlier this week.

Brown predicted yesterday that CSX Corp. will not match Norfolk Southern's latest offer but rather rely on the combination of its own bid and legal battle to capture Conrail. Other analysts said the financial sparring may not be over.

"While we believe the bidding war is near the end, it does not appear to be over if CSX desires to win a Conrail shareholder vote," NatWest Securities of New York said in a statement yesterday.

CSX is offering $110 a share in cash for 40 percent of Conrail's stock and 1.85619 CSX shares for each of the remaining shares, or $93 a share overall. Norfolk Southern said yesterday that its all-cash, $110-a-share offer gives shareholders a premium of $17 over the value of CSX's offer, based on CSX's closing stock price of $44.25 a share yesterday.

"We are determined to take every step necessary to ensure that Conrail stockholders will have an opportunity to choose between our superior offer and CSX's coercive two-tiered, front-end loaded offer," Norfolk Southern Chairman and Chief Executive Officer David R. Goode said in a statement.

Norfolk Southern officials said they could not predict whether they might bid even higher.

"A lot depends on what the other side does," said Norfolk Southern spokesman Robert C. Fort. "We've gone to $110 just to make sure everyone, particularly Conrail's board, understands our total commitment to this process."

Norfolk Southern has said it will take its offer directly to Conrail shareholders if necessary. CSX officials were not available for comment.

Still ahead are a host of legal barriers, including $300 million in break-up penalties if Conrail merges with another company, a poison pill and a tough Pennsylvania hostile-takeover statute that requires Conrail's board of directors to consider interests other than stockholders.

The legal issues have created doubts among many analysts about whether Norfolk Southern can prevail.

"Although NSC's offer is financially superior, CSX and CRR have structured their deal in such a way that both the Pennsylvania law and CRR's poison pill make a hostile deal a stretch," NatWest Securities said.

Investors reacted cautiously yesterday to Norfolk Southern's latest bid, with Conrail stock closing up $3.375, at $96.375, or $13.625 below Norfolk Southern's cash offer.

"There are so many question marks that nobody is willing to pay any more than that," Brown said.

Conrail issued a statement yesterday saying its shareholders need not take any action until the board considers Norfolk Southern's latest offer.

A vote by Conrail shareholders on the CSX-Conrail deal is set for mid-December, but Norfolk Southern is seeking a federal court injunction to block that vote. A hearing is set for Nov. 18 in Philadelphia.

Pub Date: 11/09/96

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