Norfolk Southern Corp. scored a major victory yesterday as a federal judge in Philadelphia ordered Conrail to proceed with a scheduled shareholder vote Monday on a key provision of the railroad's planned $8.5 billion merger with CSX Corp.
Conrail had said it would postpone the meeting if it lacked sufficient votes to waive a Pennsylvania law that would require an all-cash transaction by CSX, instead of the cash-and-stock deal CSX has proposed.
In issuing the injunction requiring Conrail to proceed with the stockholders meeting, U.S. District Judge Donald Van Artsdalen said it would be unfair to deprive shareholders of the right to have their vote counted on the grounds they were unlikely to approve the deal.
"That, as far as I can see, makes practically a sham election," he said.
Rival bidder Norfolk Southern, which has offered $10 billion in cash for Conrail, sought the injunction. The Norfolk, Va.-based company says it's convinced that stockholders -- angered that Conrail's board has denied them the opportunity to consider a better offer -- will not vote to "opt out" of the Pennsylvania law.
"Conrail shareholders, by voting against the "opt out" provision, will be a step closer to having the opportunity to consider Norfolk Southern's superior offer -- an offer worth about $16 per share or $1.5 billion more than CSX's coercive front-end loaded, two-tiered deal for Conrail," Norfolk Southern said in a statement yesterday.
CSX wants to pay $110 a share for 40 percent of Conrail's stock and swap CSX stock worth about $85 a share for the rest, producing a blended offer of about $95 a share. In November, CSX purchased 19.9 percent of Conrail in a $110-a-share, cash tender offer, but it needs stockholders to "opt out" of Pennsylvania's "fair value" law in order to complete the acquisition.
The court decision yesterday drove up Conrail's stock price $1.75 a share to $98.125 on speculation that CSX now may have to boost its bid in order for Conrail to win shareholder approval.
Van Artsdalen's order would not apply if there is a change in circumstances, such as a higher offer from the Richmond, Va.-based CSX, before the meeting.
A CSX official said last night that the company would have no comment on the judge's ruling or whether CSX would raise its bid.
After the ruling, Conrail General Counsel Bruce Wilson said: "We regret that the court has seen fit to interfere with what usually are normal and clearly disclosed corporate processes, especially where no decision has been made to postpone the Dec. 23 meeting."
Conrail officials said they had not decided whether to appeal yesterday's decision. The company is free to convene another meeting if it loses the shareholder vote next week.
The merger agreement, announced in mid-October, has the backing of top Conrail and CSX executives, who insist that a deal between the two is a far better, long-term strategic fit than a takeover by Norfolk Southern.
The CSX-Conrail merger would create a single-line rail system covering a 29,000-mile network in 22 states and giving CSX access to Conrail's lucrative Northeast corridor. Any deal must be approved by shareholders as well as the Surface Transportation Board, the federal regulatory agency that oversees the nation's railroads.
Pub Date: 12/18/96