Conrail Valuation

Valuation in a competitive bidding situation

CSX1
CSX2
NS

CSX -- value of synergies

CSX -- value of synergies plus loss if rival gets it
Norfolk Southern -- value of synergies plus loss if rival gets it

ss if rival gets it
rgies plus loss if rival gets it

Conrail Valuation
CSX Valuation 1

Gain in Operating Income

TV w. const growth model at
After tax
PV
NPV
Shares
NPV per share
Pre-merger
Total

Re
15.93%

Required return

4%
35%

$
$

2164.351077
90.5
23.92
$71.00
94.92

=
=

Rf
6.83%

1997
0

1998
188

1999
396

2000
550

0
0

122
91

257
165

358
198

2001
567
4943
3581
1710

+
+

Beta
1.3

Mkt Risk Prem

7.00%

Conrail Valuation
CSX Valuation 2

Re
15.93%

Required return

=
=

Rf
6.83%

Gain
Gain in Operating Income
TV w. const growth model at 4%
After tax
35%
PV
NPV
2864.457
Shares
90.5
NPV per share
$ 31.65

1997
0

1998
240

1999
521

2000
730

0
0

156
116

339
217

475
263

Opportunity Cost
Loss if rival gets target
TV w. const growth model at 4%
After tax
35%
PV
NPV
-742.462
Shares
90.5
NPV per share
$ (8.20)

1997
0

1998
-66

1999
-123

2000
-189

0
0

-43
-32

-80
-51

-123
-68

Pre-merger
Gain
Opp cost
Total

$71.00
$ 31.65
$
8.20
$110.86

2001
752
6556
4750
2268

2001
-196
-1709
-1238
-591

+
+

Beta
1.3

Mkt Risk Prem

7.00%

Conrail Valuation
NS Valuation 2

Re
15.93%

Required return

=
=

Rf
6.83%

Gain
Gain in Operating Income
TV w. const growth model at 4%
After tax
35%
PV
NPV
2579.353
Shares
90.5
NPV per share
$ 28.50

1997
0

1998
231

1999
429

2000
660

0
0

150
112

279
179

429
238

Opportunity Cost
Loss if rival gets target
TV w. const growth model at 4%
After tax
35%
PV
NPV
-1235.74
Shares
90.5
NPV per share
$ (13.65)

1997
0

1998
-130

1999
-232

2000
-308

0
0

-85
-63

-151
-97

-200
-111

Pre-merger
Gain
Opp cost
Total

$71.00
$ 28.50
$ 13.65
$113.16

2001
680
5928
4295
2051

2001
-320
-2790
-2021
-965

+
+

Beta
1.3

Mkt Risk Prem

7.00%