Conrail(A)CaseStudy_521

Conrail(A)CaseStudy_521 - Conrail Case Study Why does CSX...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Conrail Case Study Why does CSX want to buy Conrail? Several recent mergers in the western U.S. (Burlington Northern acquired Santa Fe Pacific and Union Pacific acquired Southern Pacific, both expected to generate over $.5 billion in synergies) CSX - a diversified transportation company - currently controls 38.5% of eastern rail freight (largest carrier) - economies of scale if could control more rail lines Conrail - controls 29.4% of the eastern rail freight market - routes connect major NE cities (Philadelphia, Baltimore, Boston, and NY) to major Midwestern hubs (Chicago, St. Louis, and Detroit) - near monopoly power over NE rail market
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 Conrail Acquisition Economics CSX acquiring Conrail will be a horizontal merger - cost savings through consolidating overlapping operations increasing revenues through service improvements (at expense of Norfolk Southern and trucking industry) - combined (CSX and Conrail) rail networks would facilitate long-haul, low-cost service between the Southern ports, the Northeast, and the Midwest (something Norfolk Southern could not match)
Background image of page 2
3 Conrail is an attractive takeover target because . . . revenue per mile of track operated, revenue per carload, revenue per ton originated are either best or near the top of comparable railroads Conrail’s revenue has been growing at a compound annual growth rate of 3.3% from 1992-95 compared to 2.8% CSX and 2.0 for Norfolk Southern over the same period However, Conrail has significantly more employees per mile of track than the other railroads (2.2 for Conrail, 1.6 for CSX, 1.7 for Norfolk Southern) Recall Conrail was created by the gov’t and just recently went public in 1987 Conrail ranks worst in revenue per employee and very high operating ratio of 80% (op. expense / op. revenue) Thus, high revenues, growing business, combined with the potential to reduce costs makes Conrail attractive.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 Will Surface Transportation Board (STB) approve merger on competitive grounds? Likely YES
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/02/2012 for the course FINANCE 347 taught by Professor Bayou during the Fall '11 term at NYU.

Page1 / 12

Conrail(A)CaseStudy_521 - Conrail Case Study Why does CSX...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online