CSX Corp. raised its cash and stock offer for Conrail Inc. to $104 a share yesterday, only to see rival bidder Norfolk Southern Corp. fire back with a $115-a-share, all-cash bid that is likely to keep Conrail stockholders on the hook.
"Our increased offer underscores our determination to acquire Conrail," said David R. Goode, Norfolk Southern's president and chief executive officer.
As it boosted its bid last night, Norfolk Southern said it will challenge the legality of a new wrinkle in the latest Conrail-CSX agreement that extends -- by 18 months -- the time during which Conrail would be prohibited from discussing takeover proposals with any other suitor.
That provision essentially blocks Conrail shareholders from considering Norfolk Southern's all-cash offer for two years.
A hearing is set Jan. 9 on that issue in U.S. District Court in Philadelphia, Norfolk Southern said last night.
The latest episodes in the bidding war began early yesterday, when CSX, fighting a hostile $110-a-share offer from Norfolk Southern, amended its agreement with Conrail so that Conrail's shareholders would receive $16 a share more in stock than previously proposed.
That offer boosted the blended value of the cash-and-stock deal to $104 a share and increased the $8.5 billion deal by $870 million.
But last night, the Norfolk, Va.-based railroad announced that it was increasing its bid from $110 a share, and that it would meet CSX's latest offer to pay shareholders when they approve the merger, instead of waiting for federal regulators to OK the deal.
Analysts had predicted the move from well-heeled Norfolk Southern, but they cautioned that the bidding could not go on indefinitely.
"It was an easy move for them to make, and now they can step back and see what shareholders think of it," said an analyst for a large institutional investor. "But it's getting into some pretty expensive territory now. At some point, the bidding will become too high."
A majority of Conrail stock is held by institutional investors, such as pension and mutual funds, banks and insurance companies.
2 stocks up, 1 down
The stock market yesterday reacted to CSX's offer and to the likelihood of Norfolk Southern's response which came after trading closed.
Conrail shares rose $1.75 to $100.75 on the New York Stock Exchange, and Norfolk Southern rose $2.125 to $88.375. CSX shares fell $1.50 to $43.75.
Just before CSX and Conrail announced merger plans in mid-October, Conrail's stock was trading at $71 a share.
Conrail's board of directors has rejected Norfolk Southern's takeover overtures, contending that a merger with CSX is a better fit. Conrail did not immediately react to Norfolk Southern's latest offer.
But earlier in the day, Conrail Chairman David M. LeVan reaffirmed Conrail's commitment to CSX.
"In every respect, this merger holds great potential and clearly offers the best result for Conrail," he said in a statement. "This amendment to the merger agreement reaffirms the decision of the Conrail board that it is not willing to agree to the sale of Conrail to Norfolk Southern."
Victory in Philadelphia
On Tuesday, Norfolk Southern won a victory when a federal judge in Philadelphia ordered Conrail to proceed with a shareholders' vote scheduled Dec. 23 on whether to opt out of a Pennsylvania law that prohibits two-tiered offers such as CSX's.
With many large shareholders reportedly ready to vote against the "opt out," Conrail had said it would postpone the meeting if it lacked sufficient votes.
However, the court ruled that the vote could be postponed only if there was a change in CSX's offer.
"It was a necessary move after the judge's ruling," the institutional investor analyst said. "I believe the vote would have been somewhat of an embarrassment and a message to the Conrail board."
A new vote on whether to opt out of the Pennsylvania law is now set for Jan. 17.
CSX and Conrail are hoping that the lock-up provision -- blocking Conrail shareholders from considering any other deal for two years -- will prompt Conrail shareholders to vote for the "opt-out," which would allow the sure deal with CSX to proceed.
The offers yesterday are the latest in a bidding war that began shortly after CSX and Conrail announced plans in mid-October to merge and create a 29,000-mile rail network over 22 states and give the combined railroad a lock on the lucrative Northeast corridor.
Specifics of CSX offer
In the latest agreement, Conrail stockholders would receive $16 per share in CSX convertible preferred stock in exchange for 60 percent of Conrail shares, in addition to the 1.85619 shares of CSX common stock for each share of Conrail in the original offer. CSX also would pay $110 a share in cash for 40 percent of Conrail.
The merger is subject to approval by shareholders and the federal Surface Transportation Board, which oversees the nation's railroads.
Pub Date: 12/20/96