ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, November 13, 1996 TAG: 9611130073
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
DATELINE: PHILADELPHIA
SOURCE: Bloomberg Business News
Some Conrail Inc. shareholders say they're still waiting for the railroad company to explain why a takeover bid from CSX Corp. is preferable to a higher, $110-a-share offer from Norfolk Southern Corp.
And if Philadelphia-based Conrail doesn't provide a better explanation soon, it could find itself with angry shareholders on its hands, investors and analysts said.
``Until Conrail comes out and specifies why the CSX agreement is as great as they say, the shareholders have nothing to look at besides the numbers,'' said Peter Gleason, senior analyst of Institutional Shareholder Services, an adviser to Conrail's biggest shareholders. ``Financially, the Norfolk Southern bid is clearly superior.''
NS is working to get more shareholders to agree that its sweetened cash offer of Nov. 8 is much better than CSX's bid of $93.27 in cash and stock. Last week, officials of the Norfolk-based transportation company went to Gleason's office in Bethesda, Md., with documents they said illustrated the benefits of their bid.
Gleason said CSX and Conrail have yet to contact him regarding the $8.5 billion bid, which Conrail accepted 27 days ago. Since then, Conrail's shares have risen 36 percent to 96 17/32, while CSX stock dropped 11 percent to 44 1/8.
NS shares dropped 6 percent to 88 1/4 after its original bid Oct. 23, though the stock has risen since the company boosted its offer to $9.8 billion.
Speaking at a Salomon Brothers transportation conference Tuesday, Norfolk Southern Chairman David Goode asked Conrail shareholders and the investment community to support NS' offer for Conrail, saying the offer is "in everyone's best interest."
Goode said three conditions - all of which could easily be met by Conrail's directors - stand in the way of NS acquiring Conrail: that Conrail lift its anti-takeover effort against NS; that Conrail stop hiding behind Pennsylvania law; and that Conrail kill its proposed deal with CSX.
Conrail, however, said its board was adamant about sticking with the merger agreement with Richmond-based CSX. Conrail has offered shareholders few specifics beyond saying that a combination with CSX will be better for both companies in the long term.
The companies may be able to complete the transaction without offering much more information. In Pennsylvania, a company can consider parties other than shareholders - such as customers, the community and employees - when deciding on a merger partner.
``If the statute is taken literally, the [Conrail] board can give any reason it wants for the merger,'' said Michael Dooley, a professor at the University of Virginia School of Law. ``CSX will merge with Conrail if they [Conrail] want to.''
Another cause for concern among Conrail shareholders is that CSX offered a so-called front-loaded bid. It offered Conrail shareholders $110 a share in cash for the first 40 percent of Conrail. The remaining shares will be bought for 1.856 shares of CSX stock, but only after the companies gain regulatory approval for their merger sometime late next year.
Front-loading is a controversial maneuver designed to force shareholders to accept a bid soon after it is announced. If they wait, shareholders risk getting a much lower price for their shares at a later date.
In addition, the agreement says Conrail can't terminate its merger plans with CSX until mid-July. And CSX officials are precluded from discussing the sale of Conrail assets to third parties, meaning CSX and Norfolk Southern can't divide Conrail's assets between them.
Some shareholders say they may be able to get Conrail to reconsider.
``It's hard to overlook the fact that Norfolk Southern is an excellent operator,'' said Patty McKenna, a money manager with Los Angeles-based Hotchkis and Wiley, owner of about 1.8 million Conrail shares. ``They've been studying this for a long time.''
Gleason, of Institutional Shareholder Services, said pressure from shareholders prompted CSX to raise its offer once before.
``I think they'll have to do something - either boost their bid or restructure their current offer,'' Gleason said. A restructuring is more likely because a higher bid probably would cause CSX's stock to drop, reducing the value of part of its offer.
But some investors want to see a bidding war.
``It's their fiduciary duty to talk to Norfolk Southern,'' said McKenna. ``Cash is king.''
Staff writer Greg Edwards contributed to this story.
LENGTH: Medium: 87 lines ILLUSTRATION: PHOTO: FILE. NS cars line up in the rail yards along Shenandoahby CNBAvenue in Roanoke.