Norfolk Southern Increases Offer in Fight for Conrail
PHILADELPHIA (AP) _ The stakes got higher Friday in the battle for control of Conrail, the newly attractive collection of once-failed Northeast freight railroads.
Norfolk Southern Corp. increased its hostile bid by 10 percent to about $10 billion in cash, widening the gap from the $8.5 billion cash-and-stock offer of friendly Conrail suitor CSX Corp.
On the news, Conrail stock shot up 3.6 percent, while CSX was unchanged and Norfolk Southern fell slightly.
Conrail said it’s board would study the increased offer of $110 a share. But it also said the board already had considered the relative merits of a merger with Norfolk Southern rather than with CSX and ``had unanimously determined that a merger with CSX was in the best interests of Conrail and its constituencies.″
Norfolk Southern’s move came two days after CSX sweetened its offer and Conrail reaffirmed a mid-October agreement to accept CSX’s proposal.
CSX offered $110 a share in cash for 40 percent of Conrail’s stock and 1.85619 shares of CSX stock for each remaining share. At Thursday’s closing price, the bid was worth about $93 a share.
Securities industry analysts said that after the Wednesday increase in the cash portion of the CSX bid, many shareholders still complained Conrail was settling for too little. The shareholders griped that the CSX deal didn’t measure up to the $100 a share in cash Norfolk Southern was then offering for all Conrail stock. Norfolk Southern’s new bid Friday surpassed the CSX cash-and-stock proposal by $17 a share.
``Our increased offer demonstrates our total commitment to this combination,″ said David Goode, the chairman of Norfolk Southern. ``We continue to believe, as we always have, that our offer is superior.″
CSX did not immediately respond to requests for comment.
In trading Friday n the New York Stock Exchange, Conrail closed up $3.37 1/2 at $96.37 1/2 a share, Norfolk Southern fell 37 1/2 cents at $86.62 1/2 and CSX was unchanged at $44.25.
Anthony Hatch, an analyst with NatWest Securities Corp., said he wouldn’t be surprised to see CSX come up with another offer. But the end of the bidding war is in sight, he said, with a Nov. 18 federal court hearing as the next stage in the fight. Norfolk Southern has asked the court to nullify the CSX offer.
The Norfolk Southern bid ``is really designed to put pressure on the (Conrail) board and shore up their court case,″ Hatch said.
Conrail is being wooed at a time when rail lines are combining in search of efficiencies as well as market dominance. A merger with either CSX or Norfolk Southern would create the nation’s No. 3 freight line, with access into the crucial New York market, track across the Eastern United States and into Canada.
Such a combination also might set the stage for new transcontinental rail combination.
``How this shakes out isn’t going to be important just for this merger but future mergers,″ said Martine Nowicki, senior analyst at Moody’s Investor Services in New York. ``Western railroads are watching this very closely. There are big implications here.″
Goode said Norfolk Southern was concentrating solely on Conrail, and talking about any other combination would be speculative.
Hatch, of NatWest, said winning the battle for Conrail isn’t quite as important as not losing it _ which would be disastrous.
Conrail ``is a good company and great market. How severely hurt are you if you lose?″ Hatch said. ``That’s why they are so serious.″
CSX started the bidding for Conrail last month. Conrail operates an 11,000-mile freight network in 12 Northeast and Midwest states and the Canadian province of Quebec, and CSX operates more than 18,000 miles of track in 20 states in the East, Midwest, South and Ontario, Canada.
Norfolk Southern operates a 14,400-mile rail system in 20 Southeast and Midwest states.