Csx Merger

In: Business and Management

Submitted By lucaplotti
Words 611
Pages 3
There are a few main reason that can explain why CSX have decided to implement a two-tiered offer:
- Avoid taxation at the corporate level, only the investor have to pay the taxation on the capital gains realized ones the transaction will be completed. In fact the first tier of the transaction is a tender offer, in which only the target’s shareholders are involved. The second tier of the transaction is a back-end merger, the acquirer plans to do a stock deal in order to avoid also in this tier of the transaction the taxation at the corporate level. The taxation exemption isn’t the main reason that can explain this offer, because with the same proportion of cash and stock employed also a negotiated merger will achieve the same result. Also this is a capital intensive sector and the taxation base is higher compared to other sector of the old economy, so the capital gain and the tax bill that will result, if the taxation exemption requirement are not respected, are not so huge;
- Avoid the Pennsylvania’s Business Corporation law. The premium that CSX are willing to pay in the two tier of the transaction isn’t the same, bigger with the tender offer, in order to take the control of the firm, and smaller in the back-end merger, this is not allowed unless the shareholder vote for the opt out of the statute before CSX would acquire more than the 19,9 % of Conrail. After the first stage of the transaction is completed CSX will own a 19,7 % stake of Conrail, and considering all the parties that support the merger ( management of Conrail and the employee trust ), CSX would control 35,50 % of the acquisition share and will need only another 14,60 % of the target shares to vote in favor of the opting out for it to pass. Ones the shareholders approved the opt out CSX could implement the second stage of the front end offer in order to acquire another 20,30 % stake of Conrail.…...

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