THE BATTLE raging for the control of Conrail has hotted up, with the alarums and excursions of the early weeks changing to a full-scale war in the courts. On November 20 a federal judge denied Norfolk Southern’s request for a preliminary injunction to halt the first step in CSX’s attempt to push through the proposed $8·5bn merger with Conrail. That cleared the way for CSX to buy 19·9% of Conrail stock for cash.
NS at once expanded the fight to three fronts: extending its $110 per share, all-cash tender offer until December 16; filing an appeal of the court’s ruling on the preliminary injunction; and vowing to fight CSX before Conrail shareholders who had to vote on December 23 on a charter amendment that would annul a Pennsylvania law allowing them to receive ’fair value’ for their stock.
This would in effect allow shareholders to receive less than the highest offer, and CSX would be able to buy another 20·1% of Conrail’s shares for cash - and ultimately the entire company through an exchange of stock at a price equal to $95 per share at the mid-November price.
NS had asked the court to stop CSX from buying the first block of shares until after the December vote, but the judge ruled that CSX and Conrail had not acted improperly and rejected the NS contention that a CSX-Conrail merger is illegally structured. An NS attorney admitted that once the first block of shares had been purchased, it would be very difficult to halt the deal.
Meanwhile, Surface Transportation Board Director David Konschnik said his agency could rule on the Conrail bids within 10 months. He said CSX planned to make a formal application between January 18 and March 1, while NS said its application would be filed on or before May 1. This would be followed by a public comment period ending with a vote by the STB’s three-member board in September or October.
On December 5 CSX and Conrail announced they had filed counterclaims in a US District Court alleging, among other things, that NS had ’tortuously interfered’ with the proposed merger. The suit further alleges that NS has no intention or expectation of acquiring Conrail but simply wants to disrupt the alliance between CSX and Conrail. According to a statement issued by CSX and Conrail, ’NS has flooded the marketplace with false and misleading information concerning both the CSX/Conrail merger and its conditional hostile tender offer. Norfolk should be held accountable for its actions.’ CSX and Conrail are seeking punitive damages and have requested a jury trial.
On December 5 NS responded to the counterclaims by insisting its deal was better: ’The Conrail/CSX claims are frivolous and an obvious attempt to divert attention away from the fact that the CSX/Conrail deal remains inferior ...’, said a statement.
Meanwhile, CSX began a second tender offer for up to 18344845 additional shares of Conrail Inc at $110 each. CSX said that on completion of the tender offer it would own about 40% of Conrail’s fully diluted shares. o
