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Conrail Valuation: Valuation in A Competitive Bidding Situation

This document summarizes valuation analyses for CSX and Norfolk Southern's (NS) potential acquisitions of Conrail. It presents two valuations each for CSX and NS that calculate net present value (NPV) per share from: 1) synergies from the acquisition; and 2) synergies plus the loss if their competitor acquires Conrail. The total valuation is the pre-merger share price plus the NPV per share from synergies and opportunity cost. For CSX, the total valuations are $94.92 and $110.86 per share. For NS, the total valuations are $113.16 per share.

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Harsh trivedi
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69 views8 pages

Conrail Valuation: Valuation in A Competitive Bidding Situation

This document summarizes valuation analyses for CSX and Norfolk Southern's (NS) potential acquisitions of Conrail. It presents two valuations each for CSX and NS that calculate net present value (NPV) per share from: 1) synergies from the acquisition; and 2) synergies plus the loss if their competitor acquires Conrail. The total valuation is the pre-merger share price plus the NPV per share from synergies and opportunity cost. For CSX, the total valuations are $94.92 and $110.86 per share. For NS, the total valuations are $113.16 per share.

Uploaded by

Harsh trivedi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as XLS, PDF, TXT or read online on Scribd
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Conrail Valuation

Valuation in a competitive bidding situation

CSX1 CSX -- value of synergies


CSX2 CSX -- value of synergies plus loss if rival gets it
NS Norfolk Southern -- value of synergies plus loss if rival gets it
ss if rival gets it
ergies plus loss if rival gets it
Conrail Valuation Re = Rf +
CSX Valuation 1 Required return 15.93% = 6.83% +

1997 1998 1999 2000 2001


Gain in Operating Income 0 188 396 550 567
TV w. const growth model at 4% 4943
After tax 35% 0 122 257 358 3581
PV 0 91 165 198 1710
NPV 2164.351077433
Shares 90.5
NPV per share $ 23.92
Pre-merger $71.00
Total $ 94.92
Beta Mkt Risk Prem
1.3 7.00%
Conrail Valuation Re = Rf + Beta
CSX Valuation 2 Required return 15.93% = 6.83% + 1.3

Gain 1997 1998 1999 2000 2001


Gain in Operating Income 0 240 521 730 752
TV w. const growth mo 4% 6556
After tax 35% 0 156 339 475 4750
PV 0 116 217 263 2268
NPV 2864.457
Shares 90.5
NPV per share $ 31.65

Opportunity Cost 1997 1998 1999 2000 2001


Loss if rival gets target 0 -66 -123 -189 -196
TV w. const growth mo 4% -1709
After tax 35% 0 -43 -80 -123 -1238
PV 0 -32 -51 -68 -591
NPV -742.4619
Shares 90.5
NPV per share $ (8.20)

Pre-merger $71.00
Gain $ 31.65
Opp cost $ 8.20
Total $110.86
Mkt Risk Prem
7.00%
Conrail Valuation Re = Rf + Beta
NS Valuation 2 Required return 15.93% = 6.83% + 1.3

Gain 1997 1998 1999 2000 2001


Gain in Operating Income 0 231 429 660 680
TV w. const growth mo 4% 5928
After tax 35% 0 150 279 429 4295
PV 0 112 179 238 2051
NPV 2579.353
Shares 90.5
NPV per share $ 28.50

Opportunity Cost 1997 1998 1999 2000 2001


Loss if rival gets target 0 -130 -232 -308 -320
TV w. const growth mo 4% -2790
After tax 35% 0 -85 -151 -200 -2021
PV 0 -63 -97 -111 -965
NPV -1235.745
Shares 90.5
NPV per share $ (13.65)

Pre-merger $71.00
Gain $ 28.50
Opp cost $ 13.65
Total $113.16
Mkt Risk Prem
7.00%

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