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BKBMIN008: Mergers and Acquisitions Assignment 4: HBS Case Study Analysis

This document outlines an assignment for a Mergers and Acquisitions minor course. Students are asked to analyze the HBS case study on CSX's bid for Conrail. Each group must submit a written report by October 14th answering 9 questions about the financial and strategic motivations for the deal, valuation techniques, deal design, and potential reactions. Three groups will also present their analysis during Workshop 4 on October 15th/16th in 12-15 minute presentations followed by discussion.

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254 views3 pages

BKBMIN008: Mergers and Acquisitions Assignment 4: HBS Case Study Analysis

This document outlines an assignment for a Mergers and Acquisitions minor course. Students are asked to analyze the HBS case study on CSX's bid for Conrail. Each group must submit a written report by October 14th answering 9 questions about the financial and strategic motivations for the deal, valuation techniques, deal design, and potential reactions. Three groups will also present their analysis during Workshop 4 on October 15th/16th in 12-15 minute presentations followed by discussion.

Uploaded by

Ann Ma
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Rotterdam School of Management BKBMIN008: M&A Minor

Erasmus University Academic year 2019-20

BKBMIN008: Mergers and Acquisitions


Assignment 4

HBS Case Study Analysis


 Description:

Groups are expected to answer questions about CSX’s bid for Conrail. The HBS case can be
purchased from the HBSP Coursepack link for this course provided.

https://hbsp.harvard.edu/import/662479

 Written Reports:
Each group will prepare a report on this HBS case. Each group should submit only one report.
Written reports should be posted via Canvas before Monday October 14th, 6pm. Besides
listing the names of all group members and your group number, the report should be max. 6 pages
excluding appendices, references, tables and figures. The format is as following; Times New
Roman, 1.5 spacing, 11 pt font size, 1 in margins. The report should address all the following
questions below. Always keep in the back of your mind that this is a friendly merger, so both
management teams want to successfully close this deal.
The first two questions are about the motives behind the acquisition of Conrail by CSX.
1. Analyse the financial motivations for this merger in-depth. Clearly explain the rationale
behind these motivations. In your analyses, use at least two different insights from the case
and also use the knowledge you gained from Lecture 2. (Hint: Exhibit 1 may be useful
here)
2. Analyse the strategic motivations for this merger in-depth. Clearly explain the rationale
behind these motivations. In your analyses, use at least two different insights from the case
and also use the knowledge you gained from Lecture 2. (Hint: Exhibit 9 may be useful)
Questions 3-5 are about the different valuation techniques
3. Use the comparable approach (as in Lecture 5) to conclude whether the offer of CSX to
pay $ 89.07 per share is fair. You can find all the information in Exhibit 6. Clearly explain
which multiples you have selected in each step and why. The valuation needs to be based
on 2 peer transactions. Explain which 2 peers you have selected and why. In this question
you can ignore the time differences between the different payments, just assume that CSX
buys 100% of the shares for $ 89.07 at once. Also include a critical assessment on whether
the premium you find is also representative for the CSX-Conrail case.
4. Estimate the WACC of the combined firm (i.e. CSX-Conrail). Clearly explain your steps.
Assume the market premium is 7%.
Rotterdam School of Management BKBMIN008: M&A Minor
Erasmus University Academic year 2019-20

5. Conduct a DCF analysis to estimate whether the bid of $ 89.07 per share is fair. Clearly
explain your steps and support your conclusion with arguments. Again, provide a critical
assessment on the DCF analysis.
Questions 6-7 are about the deal design.

Clarification:
The proposal of CSX was a two-tiered proposal in three stages. Which is summarized as
following:
Tier one
Stage one: Cash offer to buy 19.7% of the Conrail shares for $ 92.50
Stage two: Cash offer to buy 20.3% of the Conrail shares for $ 92.50
Tier two
Stage three: Stock offer to buy 60% of the Conrail shares in exchange for CSX
shares. This implies that shareholders Conrail receive $ 86.78 (current market
price) in CSX shares per share owned.

6. Explain the reasons for the exact format of this proposal in-detail. This implies that you
should explain the reasoning for both the first tier vis-à-vis the second tier and the
reasoning for dividing tier one in two stages.

7. What could have been the motivations to suspend the poison-pill and to arrange the
break-up fee? Explain your answer.
Question 8-9 are about reflections and predictions on this potential deal.
8. What might have been the reason that the shares of CSX initially responded negatively to
the announcement of the deal? Clearly explain your answer.

9. What should the management team of Norfolk do? How realistic is their chance of
succeeding?
Rotterdam School of Management BKBMIN008: M&A Minor
Erasmus University Academic year 2019-20

 Presentations:
3 groups will have to present their case during Workshop 4 on October 15th/ 16th. I will make the
written reports of the presenting groups available to the rest of the class via Canvas as soon as
possible after the submission. Presentations should last 12-15 minutes (summary plus analysis)
and will be followed by 10 minutes of open/structured discussions. Every group member should
actively be involved in the presentation and the discussions. This does not necessarily mean that
the entire group presents, but all group members should actively be involved in the preparations
and the discussion afterwards. The groups decide themselves who presents, everything from all
four group members to only one group member is possible. During the discussion every student
should be able to answer questions about the entire assignment. This means that every student is
responsible for the entire content and not only for the part done by him- or herself.

The following teams have to present their work during the fourth workshop:
 Team A5
 Team B5
 Team C5

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