Norfolk Southern Ups The Ante For Conrail, Bids More Than CSX
PHILADELPHIA (AP) _ Once the castoff of a declining railroad industry in need of government help, Conrail became the target of rivals’ affections Wednesday when Norfolk Southern Corp. made a hostile bid that tops CSX’s earlier offer by $1 billion.
News of Norfolk Southern’s $9.15 billion proposal sent Conrail’s stock up as much as 16 percent on the New York Stock Exchange. It later fell back a bit to trade up $10.75 at $95.50.
Either merger would create the nation’s third-largest railroad, a giant that would dominate the rail freight industry in the East.
Norfolk Southern’s offer would mean $100 per share in cash to Conrail stock holders, beating the CSX offer of a cash-and-stock mix that values Conrail at about $87.68 per share based on Wednesday’s price for CSX stock.
The CSX offer was initially worth $8.4 billion, but its stock price has fallen more than 6 percent since then, pulling down the value of the total bid to about $8.02 billion.
In a statement, Conrail said it would review the latest offer but added that its board of directors had already considered _ and unanimously dismissed _ the merits of a merger with Norfolk Southern over CSX. Conrail urged its shareholders to await the board’s decision.
CSX spokesman Thomas E. Hoppin said the Richmond, Va.-based company had no comment on the rival bid.
Norfolk Southern, which has been pursuing Philadelphia-based Conrail since 1984, had signaled its willingness to disrupt the CSX deal when it was announced Oct. 15.
``This proposal is better on every point than the CSX-Conrail proposal announced last week,″ said David R. Goode, chairman, president and chief executive of Norfolk Southern.
If Virginia-based Norfolk Southern wins Conrail, the combination would create one of the country’s biggest railroads, matching Norfolk Southern’s strength in the Southeast with Conrail’s extensive track network in the Northeast and Midwest.
At a meeting with analysts and the press in New York, Goode stressed that the all-cash offer was safer than the CSX bid, which is subject to fluctuations in CSX’s stock price. He said Norfolk Southern would consider launching a higher bid if CSX offers more for Conrail.
``We are in it to win,″ Goode said.
Analyst Steven Lewins of Gruntal & Co. said he didn’t anticipate CSX answering with a greater offer.
``I don’t think they have the financial wherewithal (to respond),″ he said.
Norfolk Southern’s stock fell 37 1/2 cents at $94.12 1/2 on the NYSE in and CSX was down 75 cents at $45.50.
A combined Norfolk Southern and Conrail would, like a CSX-Conrail deal, rank behind Union Pacific and Burlington Northern in terms of track mileage.
In a letter to Conrail’s Board of Directors, Goode said Norfolk Southern would consider locating the combined company’s headquarters in Philadelphia. In its deal, CSX said that the combined company would be renamed and based in Philadelphia.
Norfolk Southern chairman Goode said he had suggested a combination as recently as 11 days before the CSX deal was announced.
``We regret that, despite knowing our long-term interest in joining Conrail with Norfolk Southern, your chairman ignored our longstanding offer to submit a business combination proposal to you,″ Goode said in the letter.
The U.S. government set up Conrail in 1973 to take over the operations of Penn Central and five other busted railroads.
Conrail began operations in 1976 and became a publicly traded company in 1987, when the federal government sold the railroad in a public stock offering. Conrail operates an 11,000-mile rail freight network in 12 northeastern and midwestern states and the District of Columbia and Quebec.
Rep. Bud Shuster, chairman of the House Committee on Transportation and Infrastructure, said he was watching the bidding war for Conrail with interest. The merger would have to gain approval of federal regulators.
``We certainly have come a long way from the days of a bankrupt railroad,″ said Shuster, R-Pa. ``Now we are being courted by two suitors, both of whose intentions seem serious. It’s nice to be wanted but, of course, the fine print is what counts.″
Norfolk Southern operates a 14,500-mile rail system in 20 states and Canada, as well as a trucking company.
CSX operates more than 18,000 miles of track running through 20 states in the East, Midwest, South and in Ontario. The rail business accounted for nearly half of its revenues last year.