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CSX, Conrail to merge
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October 15, 1996: 9:02 a.m. ET
Rail giants agree to $8.4 billion deal amid industry consolidation
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NEW YORK (CNNfn) -CSX Corp. on Tuesday announced plans to acquire Conrail Inc. in an $8.4 billion merger that will form the dominant railroad company in the Eastern United States with operations in 22 states and $14 billion in annual revenues.
Less than six months after Union Pacific Corp. and Southern Pacific Rail Corp. joined forces in a deal that many in the rail industry complained would crush competition, CSX and Conrail said their decision to merge was prompted by a need to keep pace in a consolidating industry. If approved by shareholders and federal anti-trust regulators, the combined company would control 29,645 miles of track stretching from Miami to Boston.
"This merger of equals represents a strategic combination that will provide excellent value for our customers and our shareholders, and is consistent with sound public policy," CSX Chairman and Chief Executive Officer John W. Snow said in a statement released before the opening bell on Wall Street. "This is the right merger at the right time between the right companies."
Under terms of the agreement, which now faces the scrutiny of the federal Surface Transportation Board, CSX will pay $92.50 in cash and stock for each Conrail share. Conrail shareholders will receive 40 percent of the payment in cash and 60 percent in stock.
In trading Monday on the New York Stock Exchange, CSX closed at $49.50, while Conrail finished at $71 per share. Conrail shares jumped dramatically in pre-open trading Tuesday ahead of the start of the session.
Snow and other executives at both companies will continue to hold leading roles after the merger is completed in 1997. Snow will serve as chairman and his Conrail counterpart, David M. LeVan, will be the company's president and chief executive officer. The two executives will switch roles every two years.
The two rail companies will become division of a holding jointly-controlled holding company with a board made up equally of directors from Richmond, Va.-based CSX and Philadelphia-based Conrail. The holding company will be based in Philadelphia, the companies said.
CSX and Conrail said that by merging they will save about $550 million a year based on a combined $14 billion in revenues by operating single rail lines that run throughout the eastern states and international shipping routes. Executives confirmed they expect to order some job cuts in overlapping areas, but added that most reductions will be offset by new jobs created as the combined company expands its services.
Le Van said he believed the merger was the ideal and necessary choice for his company to make. He said the merger would add to customer service, eliminate costs and end delays cost by the exiting multi-layered rail system.
"Recent changes in industry structure and in U.S. patterns of distribution require a broader market reach," LeVan said. "The new company we are creating will be more competitive with trucks and other modes of transportation …Our customers will enjoy significantly improved, more competitive freight transportation service that will result in greater service innovation and competitive pricing.
A merger of Conrail and CSX falls within an industry pattern of consolidation that came to prominence with Union Pacific's $3.9 billion acquisition of Southern Pacific. That agreement came under fire from competitors, customers and federal authorities. At one point, Union Pacific executives even accused Conrail of trying to "cut the guts out" of the deal by vying for pieces of its rail system that would be sold off to calm fears of an anti-trust violation.
There is no indication yet as to how other rail and freight companies will respond to the Conrail-CSX planned combination.
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