Newspaper article The Florida Times Union

Law May Give CSX Edge in Merger

Newspaper article The Florida Times Union

Law May Give CSX Edge in Merger

Article excerpt

A tough anti-takeover law in Pennsylvania strongly favors CSX's

friendly merger pact with Philadelphiabased Conrail Inc. over

Norfolk Southern's hostile counterbid, some legal experts and

financial analysts say.

But the state law, which allows a company to consider interests

beyond those of its shareholders, may not provide the

bulletproof protection many think it will.

Ultimately, any decision will hinge on how Conrail's directors

-- and investors -- value the two bids, said one lawyer. The

company with the best offer likely walks away with Conrail and

its virtual monopoly of the Northeast rail market.

CSX agreed to pay Conrail shareholders a mix of cash and stock

valued at $92.50 a share, or $8.4 billion, when it was announced

Oct. 15. The value since has dropped to about $89 a share as

CSX's share price slipped after the merger was announced.

Norfolk Southern upped the bidding Wednesday, offering to pay

$100 a share in cash for a total value of $9 billion.

"In the final analysis, Conrail's board cannot hide behind an

anti-takeover law to select an offer which is not the best value

to the stockholders," said Gardner Davis, a partner in the

Jacksonville law firm Foley & Lardner. "The anti-takeover laws

don't absolve directors of their fiduciary duty to maximize

shareholder wealth."

But Eric Orts, an associate professor of legal studies at the

Wharton School in Philadelphia, said Pennsylvania's law is the

toughest in the nation and will pose a serious challenge to

Norfolk Southern's bid.

"If the [Conrail] directors follow the statute and make an

informed, rational decision, the statute gives them significant

protection from a hostile bidder," he said.

Pennsylvania's anti-takeover law was first enacted during the

merger mania of the 1980s in reaction to fears that takeover

specialists would dismantle companies and leave workers without


It originally passed in 1983, according to Orts, around the

time Texas oilman T. Boone Pickens was circling for a takeover

of Pittsburgh-based Gulf Oil Corp. …

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