ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, November 7, 1996 TAG: 9611070066
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: GREG EDWARDS STAFF WRITER
CSX Corp. and Conrail said Wednesday that CSX has sweetened its offer to buy Conrail based partly on discovery of additional gains from merging the two railroads.
The two companies amended their merger agreement - first announced on Oct. 15 - in other ways, including extending until next summer the date when Conrail's board can consider a competing bid from Norfolk Southern Corp. or another buyer for the freight railroad.
The CSX-Conrail announcement followed Norfolk Southern's revelation that it had broken off its short-lived talks with CSX about dividing Conrail's track and routes to provide more rail competition in the Northeast.
The talks ended because CSX was headed in one direction and Norfolk Southern in another, said NS spokesman Bob Fort. All CSX wanted to talk about, he said, was what CSX could do for Norfolk Southern after a CSX-Conrail merger, not what could be done for shippers by balancing competition among East Coast railroads.
A portion of the amended merger agreement hints that Conrail may have raised objections to CSX's discussions with Norfolk Southern, from which Conrail was excluded. CSX and Conrail have now agreed that neither will talk with NS or any other railroad about trackage rights or other concessions unless both CSX and Conrail agree and participate.
CSX increased to $110 a share the cash portion of its offer for Conrail's common stock and preferred stock held in an employee stock ownership plan, CSX and Conrail said in a joint statement. CSX would acquire 40 percent of the 17.9 million outstanding shares at that price, which is 19 percent higher than CSX's original offer of $92.50.
The remaining 60 percent of the original deal would remain the same with CSX trading 1.86 of its shares for each remaining Conrail share. The new offer based on the closing price of CSX's stock Tuesday is worth roughly $8.4 billion.
CSX Chairman John Snow said CSX's sweetened offer for Conrail reflects both a commitment to completing a merger and to discovery of an additional $180 million in cost savings and other immediate benefits from merging the two railroads, bringing the total of potential merger benefits to $730 million.
The amended CSX-Conrail agreement is still worth less than Norfolk Southern's all-cash offer of $100 per share for Conrail, which carries a total value of $9.15 billion. NS said earlier this week it already has commitments of $15 billion from lenders to cover its bid for Conrail.
Under its amended agreement with CSX, Conrail's board cannot consider a competing agreement for Conrail until July 12, 1997, three months later than the original agreement.
CSX's Snow said Conrail shareholders who receive CSX shares will see their value increase substantially after the merger. The merger also holds public policy benefits, including lower freight prices that will reduce the number of trucks on Eastern interstate highways and a safer operations of passenger trains, Snow said.
But Norfolk Southern continued to insist that its offer for Conrail is the better of the two. "It is clear to me that CSX and Conrail intend to continued their joint efforts to railroad Conrail shareholders into accepting a proposal significantly inferior to Norfolk Southern's $100-per-share all-cash tender offer, NS Chairman and President David Goode said.
"At this point now we're charging ahead and will do whatever is necessary to make sure Conrail shareholders have a chance to get a closer look at our offer," NS' Fort said. Asked if NS might sweeten its offer for Conrail in response to CSX's new offer, Fort said that NS is looking at all its options and he couldn't respond either "yes" or "no" to the question.
Thom Brown, a money manager for Rutherford, Brown & Catherwood, said, "The way it stood, Norfolk [Southern] clearly had the better deal for shareholders and that's why CSX has decided to sweeten the deal somewhat. But I'm not sure they've sweetened it enough to pull this off."
He wouldn't say how many Conrail shareholders have responded so far to NS' $100-a-share tender offer. The offer expires at midnight on Nov. 21.
However, CSX said that it had bought 56,634 shares from investors responding to its offer for the company through Tuesday. The deadline for responding to the amended offer announced Wednesday has been extended to Nov. 20, CSX said.
A Conrail shareholders' meeting set for Nov. 14 has been postponed until sometime in mid-December. It is open to shareholders who hold stock as of Dec. 5.
The Associated Press contributed to this story.
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