ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, November 19, 1996 TAG: 9611190109
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
DATELINE: PHILADELPHIA
SOURCE: CHRISTOPHER DINSMORE LANDMARK NEWS SERVICE
THE JUDGE did not throw out Norfolk Southern's challenge Monday. He plans to rule on the proposed CSX injunction by 4p.m. today.
A federal judge in Philadelphia said Monday he will rule today whether to allow CSX Corp. to complete the first step in its proposed merger with Conrail.
Norfolk Southern Corp. is asking the judge to prevent CSX from closing its tendering offer for nearly 20 percent of Conrail's shares. Completing that transaction would help CSX block Norfolk Southern's competing offer for Philadelphia-based Conrail.
Conrail shareholders are likely to tender their shares to Richmond-based CSX to avoid missing out on the lucrative front end of CSX's ``coercive'' offer, said John Coffee, a Columbia University law professor specializing in mergers and acquisitions and an expert witness for Norfolk Southern.
U.S. District Judge Donald VanArtsdalen said he would rule by 4 p.m. today.
The request stems from a suit filed by Norfolk-based Norfolk Southern to block the CSX merger alleging Conrail's board of directors violated its fiduciary duty to shareholders and failed to fully disclose certain details of the proposed CSX-Conrail merger.
VanArtsdalen may choose to dismiss the suit on the grounds that it is not within the federal court's jurisdiction. He postponed ruling on a request by Conrail and CSX to dismiss Norfolk Southern's suit until after hearing arguments.
Norfolk Southern lawyers call a dismissal unlikely.
``These judges are busy; and if he thought this was a waste of time, he would have made it very clear,'' said Craig Lewis, an attorney with a Philadelphia law firm representing Norfolk Southern.
CSX and Conrail have a friendly $8.5 billion merger agreement. Norfolk Southern is trying to break up the merger and buy Conrail with a $10 billion hostile bid.
The winner will be the biggest railroad in the East and the nation's third-largest. The loser will be at a steep competitive disadvantage.
To make its case, Norfolk Southern attempted Monday to show that CSX's offer for Conrail is coercive to shareholders and that Conrail's board abdicated its fiduciary duty to shareholders in the merger agreement.
``What they have done is taken a law designed as a shield against two-tiered, front-end-loaded offers, and they are using it as a sword against their shareholders,'' said Steven Rothschild, an attorney representing Norfolk Southern.
CSX is offering $110 cash per share for 40 percent of Conrail's stock and CSX stock worth about $82.60 a share at Monday's closing price for the remaining 40 percent.
CSX will likely get the 19.9 percent of Conrail's stock it is seeking by Wednesday because of how its offer is structured, Coffee said. If it does, CSX will be be able to ``stuff the ballot box'' in a Conrail shareholder vote on the merger in mid-December, he said.
CSX would gain a substantial head start on Norfolk Southern, which is trying to convince shareholders to vote against the CSX merger.
Despite its claims, Norfolk Southern faces the likelihood that the federal judge will be unwilling to question the decision of Conrail's board, many analysts have said.
Under Pennsylvania law, a board has wide discretion to choose a merger partner and a duty to the corporation and all its constituencies, including employees, customers and communities, not just shareholders.
Conrail Director Furlong Baldwin testified Monday that the board firmly believes that it acted in the best interests of Conrail and its constituencies, including shareholders, by approving the CSX merger.
``I in no way think we have treated the shareholders shabbily in this,'' said Baldwin, also chairman and chief executive of Mercantile Bankshares Corp., a $6 billion Baltimore-based bank.
Conrail's stock has soared from $71 a share Oct. 14, the day before the CSX merger was announced, to well above $90 the next day. It closed Monday at $96.
Conrail also intends to make the argument that CSX is not for sale. It has negotiated a ``merger of equals'' with CSX that includes substantial concessions for Conrail, including moving the headquarters to Philadelphia, roles for its management in the merged company and a premium for shareholders.
``We got a premium for a merger of equals, which is very unusual,'' Baldwin said.
LENGTH: Medium: 85 linesby CNB