THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Saturday, October 26, 1996 TAG: 9610260264
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY CHRISTOPHER DINSMORE, STAFF WRITER
LENGTH: 89 lines
A federal judge in Philadelphia has agreed to hear Norfolk Southern Corp.'s request for an injunction to delay CSX Corp. and Conrail Inc. from proceeding with a planned merger.
Norfolk Southern sued Conrail, its board and CSX on Wednesday in Philadelphia's U.S. District Court, contending that the proposed merger of CSX and Conrail is being done hastily through a ``scheme of coercion, deception and fraudulent manipulation.''
Norfolk Southern, a long-frustrated suitor for Conrail and its northeastern rail network, launched a hostile bid for Conrail on Wednesday. The Norfolk-based railroad said it would pay $9.15 billion to buy Conrail, trumping last week's friendly offer from Richmond-based CSX by at least $1 billion.
Norfolk Southern and CSX are fighting for dominance east of the Mississippi River. A Conrail merger with either company would create the nation's third-largest railroad which would handle more than half the rail freight in the East.
In its suit, Norfolk Southern said it had been trying to set up a meeting with Conrail since Sept. 24 to renew its pursuit. To its ``surprise and dismay,'' Conrail and CSX announced their proposed merger Oct. 15, the suit said.
The Norfolk-based company has made repeated offers to buy Conrail since 1984.
In its suit, Norfolk Southern contends that Conrail and CSX are trying to ``fraudulently manipulate Conrail's shareholders to swiftly deliver control of Conrail to CSX and to forestall any competing higher bid for Conrail.''
Conrail, in a statement, dismissed Norfolk Southern's suit, saying it is ``without merit.''
The court fight will be the first test of Pennsylvania's 1990 anti-takeover law, considered the strictest in the nation.
U.S. District Judge Donald W. VanArtsdalen scheduled a Nov. 12 hearing on Norfolk Southern's request that the court halt a special meeting of Conrail shareholders scheduled for Nov. 14.
Norfolk Southern also has asked the court to dissolve Conrail's so-called ``poison pill'' plan against hostile takeovers and delay CSX's tender offer ``until corrective disclosures are made and adequately disseminated.''
CSX and Conrail are clearly attempting to cloak their merger in the protections afforded by the Pennsylvania legislation that makes hostile takeovers difficult to accomplish, said Brian Routledge, a transportation stock analyst at Prudential Securities in New York.
``Conrail and CSX will likely take a just-say-no approach to Norfolk Southern and stand behind the statute . . . and hope the courts agree with them,'' Routledge said.
Eric Orts, associate professor of legal studies at the Wharton School of the University of Pennsylvania, said the law affords Conrail and CSX ``significant protection from a hostile bidder,'' Orts said.
Among its provisions, the statute allows a company to look beyond its shareholders' interests - even if a rival bid is higher - to consider what is best for its employees, customers, suppliers and the cities in which it does business.
``One of the interesting legal questions is, how do you balance these other interests against this huge premium?'' Orts said. ``I bet a lot of lawyers are being paid a lot of money to figure out the answer to that question.''
The success of Norfolk Southern's challenge will hinge on how much weight the Conrail board gave to shareholders' interests and how seriously the board considered other offers, Routledge said.
Norfolk Southern disclosed in the lawsuit that an offer it made in September 1994 - and spurned by Conrail - would have been worth more than $101 a share to Conrail shareholders.
Analysts were reluctant to predict the outcome of the court battle.
``That's something that could go either way,'' said Renee Johansen, a rail stock analyst with the Richmond brokerage Wheat First Butcher Singer. ``It has in the past.''
Investors appeared to take profits in the railroad stocks on Friday. Conrail shares, which soared more than 25 points in the past two weeks, fell 1/4 to 93 3/8. Norfolk Southern was down 1 to 91 1/2, but shares of CSX ended the day at 44 1/8, up 1/8. MEMO: The Associated Press contributed to this report.
Conrail must be based in Philadelphia/D2 ILLUSTRATION: GRAPHIC
A federal judge in Philadelphia will consider Norfolk Southern's
request to delay the CSX-Conrail merger.
Norfolk Southern has bid at least $1 billion more for Conrail, but
Conrail's board favors CSX.
The case will be a test of Pennsylvania's anti-takeover law, which
lets a company consider the best offer overall, not just the most
profitable financially.
KEYWORDS: LAWSUIT MERGER CONRAIL CSX NORFOLK SOUTHERN by CNB