ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Wednesday, November 20, 1996 TAG: 9611200066
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: PHILADELPHIA
SOURCE: Associated Press
A federal judge on Tuesday rejected Norfolk Southern Corp.'s attempt to block the sale of Conrail to CSX, turning aside a bid from NS that would pay more for the Northeast freight rail line.
U.S. District Judge Donald VanArtsdalen said in denying the injunction requests by NS that the Conrail board had not acted in bad faith by signing the $8.5 billion merger agreement with CSX.
VanArtsdalen said directors in Pennsylvania are not bound solely by the needs of shareholders, but must take into account other issues such as the effects on employees, the community and customers.
``It is hard for me to conceive any shareholder being misled by Conrail or CSX,'' he said.
Norfolk Southern said it already had filed an appeal with the 3rd U.S. Circuit Court of Appeals. A ruling is expected by 1 p.m. today, 11 hours before the CSX bid expires.
A Conrail merger with either CSX or Norfolk Southern would create the nation's third largest freight line with access to the crucial New York market and with tracks running across the Eastern United States and into Canada.
The case attracted considerable media attention and more than 100 lawyers to the courtroom. Norfolk Southern's injunction request is one of the first challenges to Pennsylvania's strict anti-hostile-takeover statute passed in 1990.
Norfolk Southern Corp. argued the CSX-Conrail merger would violate state and federal laws and that Conrail is doing its shareholders a disservice by refusing to consider a higher offer.
The decision affects only the first stage of the Conrail merger, an offer by CSX to pay $110 each for 17.9 million Conrail shares - about 19.9 percent of the company.
The complete CSX offer, worth about $8.5 billion, would pay 40 percent of Conrail shareholders $110 a share and the rest CSX stock equivalent to the market price for Conrail.
Norfolk Southern offered $110 a share to every stockholder.
``Pennsylvania law is not intended to permit what is going on here,'' Norfolk Southern lead attorney Steven J. Rothschild said. He said the buyout offer is being ``crammed down the throats of shareholders.''
CSX said it will begin to purchase Conrail shares immediately after the expiration of its offer.
``We are gratified with the court's decision, which will enable us to proceed as planned with our tender offer - the first step in the CSX-Conrail merger,'' said CSX chief executive officer David M. LeVan.
``We are fully committed to completing our strategic merger. We believe it clearly is the superior business combination.''
VanArtsdalen's ruling came at the end of two days of testimony in the takeover case.
In his decision, VanArtsdalen dismissed claims that Conrail misled its shareholders and did not disclose the true value of the higher bid. LeVan testified that none of the documents sent to shareholders says the CSX deal is in their best interest. The documents emphasize that the merger is in the best interest of the company.
VanArtsdalen pointed out that much of the evidence offered in court was targeted at CSX. He said CSX was under no obligation to contact Conrail shareholders.
The judge also upheld Pennsylvania's tough anti-takeover statute, which was designed to prevent hostile takeover offers. He said that CSX's two-tier deal, in which certain stockholders get less for their shares than others, was legal under state law.
``As I see it, it doesn't make the back end unfair or coercive,'' he said.
Conrail took full advantage of the state's law to structure several barriers to a hostile takeover:
*A ``poison pill'' that would trigger the issuance of millions of new shares to all stockholders except the hostile company. Stockholders would receive $205 worth of new shares for every share they own. The Conrail board exempted CSX from the poison pill.
*A ``breakup'' payment of $300 million to CSX if Conrail cancels the buyout or is taken over by another company.
*A ``lockout'' clause prohibiting Conrail's board from considering a competing bid for nine months, even if the CSX bid fails.
Conrail is being wooed at a time when rail lines are combining in search of efficiencies as well as market dominance.
Conrail operates an 11,000-mile freight network in 12 Northeast and Midwest states and the Canadian province of Quebec, and CSX operates more than 18,000 miles of track in 20 states in the East, Midwest, South and Ontario, Canada.
Norfolk Southern operates a 14,400-mile rail system in 20 Southeast and Midwest states.
LENGTH: Medium: 88 linesby CNB