Acquisition of Consolidated Rail Corp. (A) By Benjamin C. Esty; Mathew Mateo Millett


Subjects Covered:

Acquisitions; Auctions; Competitive bidding; Decision making; Deregulation; Game theory; Management controls; Mergers; Valuation



On October 15, 1996, Virginia-based CSX and Pennsylvania-based Consolidated Rail (Conrail), the first and third largest railroads in the eastern United States, announced their intent to merge in a friendly deal worth $8.3 billion. This deal was part of an industry-wide trend toward consolidation and promised to change the competitive dynamics of the Eastern rail market. Students, as shareholders, must decide whether to tender shares into the front-end of a two-tiered acquisition offer. To make this decision, they must value Conrail as an acquisition target and understand the structure of CSX’s offer.

Learning objective:

Provides an opportunity to value a large-scale acquisition using comparable transactions and discounted merger synergies. In addition, it illustrates the mechanics of a two-tiered offer and provides a vehicle to discuss various anti-takeover provisions including poison pills, lock-up options, break-up fees, and no-talk clauses.


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