Conrail

Mergers & Acquisitions

Question 1

CSX wants to buy Conrail for three master(a) reasons: firstly, buying Conrail would generate synergies by increasing revenue dapple reducing costs through consolidation of overlapping operations; secondly, the deal would strength CXS-Conrails market position patch simultaneously weakening Norfolk Southerns; and, similarly, CSX seeks to preempt another(prenominal) companys potential bid for Conrail for fear that they would draw back market sh are themselves.
In order to gauge the gist CSX would be willing to pay to acquire Conrail, we utilize two comparative and DCF analyses.
Multiples Valuation
We used three different ratios sourced from precedent transactions in order to calculate Conrails value to CSX: terms/ scratch, Price/ harbor, and EV/EBITDA.

Table 1: Precedent Transactions

We used the total value of each multiple as a benchmark and assumed that Conrail represents the bonnie level of the rail industry. Furthermore, to subscribe to a range of share prices, thus developing a more robust analysis, we also show the minimum and uttermost values for each multiple. We also assumed that Conrails tracking four quarters could be roughly used as real data for 1996, meaning there were no epoch-making changes among different time periods.

EV/EBITDA
According to EV/EBITDA comparisons, Conrail shares are worth $103.



84.

Table 2: Enterprise Value to EBITDA proportion Implied Value

P/E
Since the P/E ratio is based on current year earnings estimates, we used Conrails 1996 estimated EPS for consistency, which yielded an average share price of $95.09.

Table 3: Price to Earnings Ratio Implied Value

P/B
The implied acquisition value/share, given average P/B ratios, was $148.23.

Table 4: Price to Book Ratio Implied Value

The ranges of prices yielded from each method are so liberal that they are somewhat meaningless. Therefore, we only considered average prices and further averaged those, to experience at an aggregate comparative valuation of...If you want to halt a full essay, order it on our website: Ordercustompaper.com



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