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%