1. Bankruptcy and Corporate Reorganization
Alfio Shkreta
2 June 2013

2. Case summary
 CSX has put forth a two-tier merger agreement to acquire Conrail
 The front-end offer for 40% of the shares is $92.50
 The back end offer is an exchange offer with a ratio of 1.85619 shares of CSX for 1 share of Conrail
 Conrail is also a potential a target of Norfolk Southern
 Both CSX and Norfolk are mature firms whom operate mostly in the railroad industry and intend to grow through acquaints as the market is a
mature one
 The Pennsylvania antitakeover law makes the bidding process difficult due to the several provisions incorporated in it
 The multiples valuation gives a range of $90.48 - $126.98
 The DCF valuation gives a range of $93.24 - $93.54

3. Background information
 Formed from the remains of six bankrupt Northeastern railroads in 1973
 Earned its first profit in 1981 - $39.2 million on revenues of $4.2 billion. Privatized through an IPO in 1987
 Major player in the Northeastern cities and their connection with major Midwestern hubs
 In 1995 it had 23,510 employees, operated 10,701 miles of track and controlled 29.4% of the Eastern rail freight market
 Main financial indicators as of 1995
 Operating revenues - $3.686 billion
 Operating ratio – 79.9%
 Revenues per employee - $156,784
 P/E ratio – 12.9
Conrail
CSX
 A Virginia-based diversified transportation company (intermodal services, ocean-container shipping, barging, contract services
and railroad services)
 Major player in the Southeastern and Midwestern States and the Canadian Province of Ontario
 In 1995 it had 29,537 employees, operated 18,645 miles of track and controlled 38.5% of the Eastern rail freight market
 Main financial indicators as of 1995
 Operating revenues - $4.819 billion
 Operating ratio – 76.7%
 Revenues per employee - $163,151
 P/E ratio – 11.6

4. Question 1
Why is CSX interested in acquiring Consolidated Rail Corporation (Conrail)? Describe the
arguments for the offer being motivated by synergies, as well as arguments for the
motivation to pre-empt a bid by Norfolk.

5. Strategic choice CSX-Conrail
 The combined entity would result in more than $8.5 billion in revenues and nearly 70% of the Eastern market
 CSX-Conrail would be able to control the “rail-way” between the Southern ports (CSX), the Northeast (Conrail) and the Midwest (both). By having
a full access to these markets they new company would be able to offer services to its clients for a lower price (economies of scale). This new
combination would restrict the access the presence of Norfolk Southern in these markets, deviating “business” towards the new company
 The Midwest market, where both firms are heavily present, would become a center of operations and the result would be a reduction of costs
 Faster load and unload of goods
 More line tracks available for transportation
 Higher co-operation and greater manpower
 Exchange of market knowledge and client base
 Potential to capitalize on the opportunity of being the first railroad company to connect the East to the West
 Geographically well placed
 Network already existing
 Financial capacity present
 The railroad industry is a mature market. The only option
to grow is through acquisitions
 CSX-Conrail would consolidate overlapping transactions
 CSX-Conrail would increase revenue through service improvements
 Cost synergies of $370 million by the year 200
 Additional operating income of $180 millions
 Revenues would come from taking industry
and taking business over from Norfolk Southern

6. Pre-Empt Bid from Norfolk Southern
 Norfolk Southern is the most efficient and best-managed railroad company in the United States
 Operating ratio – 73.5%
 Revenue per employee – $193,690
 Return on sales – 15.3%
 Made and unsuccessful bid of $1.6 billion for Conrail in the mid ‘80s. Clearly very interested in acquiring the firm for strategic reasons
 It has access in the Southeastern and Midwestern States and the Canadian Province of Ontario but
it lacks the presence in the Northeastern states which are considered the industry’s prize possessors
 Financially Norfolk is healthier than CSX
 Leverage ratio is 33.6%. It can assume more debt than CSX can (40.1%)
 Current ratio of Norfolk 111.4% vs. CSX’s 64.7%
 EPS of Norfolk are $5.44. CSX is at $2.94
Norfolk Southern has all the “cards” to make a bid that is better
than the CSX one. It can sustain more liabilities in its balance sheet
and it will benefit from synergies if it potentially merges with
Conrail. Therefore the sooner CSX closes the deal the better it is
otherwise it faces a major risk. Both bidders are strategic bidders
and therefore the war can result in high valuations for Conrail which
would lower the realizable profits

7. Question 2
Describe the offer made by CSX. How much is CSX effectively offering per Conrail share?

8. CSX’s offer deal structure
1. CSX has advanced an offer to the shareholders of Conrail. It is a two-tier offer
worth an estimated total value of $8.3 billion. An offer is generally structured in
this way as to gain “effective control” of the corporation the first stage and
then acquire the remaining shares at a more favorable price
2. CSX will offer to the front-end shareholders $92.50 in cash for their shares. This
offer is extended to 40% of the shareholders. Once the first stage is completed
the remaining shareholders of Conrail will have the opportunity to convert one
share of Conrail for 1.85619 shares of CSX. Based on CSX’s stock price of
$46.75 that is equal to $86.78. Counting for the time value of money it means
that the back-end shareholders will get around $9 per share less than the front-
end shareholders making it an unequal offer
3. Due to regulatory requirements of the State of Pennsylvania, the obligation to
bid for all shares at the same price once a 20% ownership is reached, the front-
end offer is divided in two stages. First CSX will put forth a tender offer for
19.7% of Conrail’s shares. After that is completed and the shareholders have
voted for the nullification of the “fair value” statue, a statute that explicitly
requires a bidder to offer to all shareholders the same price unless target
shareholders dismiss this provision, CSX will proceed to tender the remaining
20.3% of the shares
4. The CEO of Conrail will eventually take over the new company after two year’s.
He will get a salary increase of $2 million. The reason is the fact that Act 36
grants exclusivity to the board to turn down an offer regardless of the price
offered making a co-operation with the board and its CEO crucial
Two-tier
offer
60% in
shares
20.3%
19.7%
40% at
$92.50
1
2
3
 The deal contained several other important provisions1
 Break-up fee of $300 million
 CSX was granted the right to purchase 15.96 million newly issued common shares of Conrail ay $92.50
 Conrail suspended its poison pill, triggered at 10% ownership level
 A “no-talk” clause was included, forbidding Conrail from pursuing merger discussions with third parties
1- The provisions will be discussed in detail in question 6
The deal is not well constructed. The
shareholders will not accept knowing they can
get more out of the bid war. Also the CEO
turnover may never happen because there is no
contract that can uphold forever. Most probably
the first vote will not succeed

9. CSX’s offer effective price
 Conrail shareholders will have the option to tender 40% of the shares at a
price of $92.50 per share. Even though the process is split in two phases it will
be consummated within a very short period of time, one month and therefore
the value of money received is equal for both sub-groups of the front end offer
 36.2 million shares x $92.5 = $3.348 billion
 Conrail’s remaining shareholders will not have the option to get cash for their
shares but will be part of the exchange programme. They will get 1.85619
shares of CSX for one share of Conrail, resulting in a total 107,791,117 shares.
The price of CSX dropped to $46.75. Because the shares will be converted at
some point in the future I assume that it is fair to calculate the value with this
price
 100.8 million shares x $46.75 = $4.712 billion
 Thus summing both figures, the proceeds from the cash tender offer and the
expected value of shares once they are converted, I get a total value of $8.06
billion
 ($8.06 billion)/(90.5 million shares) = $89.06 per share
 The effective/blended price paid for the transaction is equal to $89.06
 Exhibit 6 presents a summary of recent railroad acquisitions. Out of 5 merger offers only 3 were anchored successfully. That shows that there is
present risk of the CSX-Conrail merger not being concluded and that would harm the firms reputation and the share prices would suffer leading
to value destruction for the shareholders
 In exhibit 1 the stock price of both firms shows that Conrail is trading currently at its 52-week high and the changes of the price sky-rocking are
limited as shown by its past. Conrail is not far from its 52-week high share price either. This information can serve as an indicator that the share
price movement in the upper direction seems to be fairly limited. The synergies will not crystalize in any time soon therefore the portion of
shareholders whom are being converted as part of the merger agreement face a big chance of ending with a low value
# of shares Cash Exchanged shares
Conrail's 40% 36,200,000 $3.348 billion
Conrail's 60% 54,300,000 100,791,117
 The information in the case notes the opportunity of
the merger being closed by the end of 1997.
Assuming that the 60% shareholders whom have not
tendered and are not able to sell in the meantime
and calculating the time value of money with r being
equal to the cost of equity 16.45% they could end up
with $74.50
Price consideration

10. Question 3
Using Multiples valuation, what is the value of Conrail to CSX? Incorporate the estimated
synergies in the value. Describe clearly which multiples you use and why, and describe
which comparison firms you use and why. How does this value compare to the offer made
by CSX?

11. Transaction multiples value range $90.48 - $126.98
 The peer group that I chose are the transactions that have been completed
 That is for the simple reason that because this are transaction multiples, the bid offer
encompasses the potential synergies . As such when the deal is not concluded the number
is biased and it will give an unrealistic number. Plus the synergies value for the two omitted
firms are missing (one being Santa Fe Pacific whom I cannot twice)
 When a bidder puts forth an offer he will include a premium as a result of gaining control
for the enterprise. Thus including deals whom are not concluded would lead to biased
numbers
 Santa Fe Pacific, Chicago and North Western and Southern Pacific
 The best peer group would be selected on the following criteria
 Business risk – all of the peer members are part of the same industry and face on average
the same risks. There may be some risk differentiation due to some firms operating in the
West vs. Midwest vs. East but that does not deteriorate the quality of the peer group
 Growth expectations – the railroad market is a mature one. The growth is to be expected
through acquisitions and no technological breakthrough is expected
 Profitability – on average Conrail is more profitable than the peer group in terms of net
income and it depends very much on how efficient assets are used
 Leverage structure – the peer group is more levered than Conrail
 Considering the multiples presented below, CSX is offering less than the counterparts in the other
deals. An important difference that are the synergies (as a % of target’s operating expenses) to be
realized which are estimated to be lower for Conrail and that would certainly affect the price to be
offered as there is less to get from the target
Considerations
EPS Book Value Sales EBITDA
Santa Fe Specific 21.4x 4.5x 2.6x 13.1x
Chicago and North 18.3x 5.5x 2.4x 8.5x
Southern Pacific 18.4x 3.7x 1.7x 12.2x
Average 19.4x 4.6x 2.2x 11.3x
Conrail 18.4x 2.19x 1.72x 4.26x
Offer Price Per Share as a Multiple of
Total Enterprise Value as a
multiple of
Projected synergies
22.30%
27.70%
24.50%
24.83%
17%
Inputs
 As the offer price I use the $89.06
 The EV is calculated as the # of
fully diluted shares outstanding
times the pre-bid price
 $6.425 billion
 The EPS that I use is the 1996 one
as to be as close as possible to
the bid time and not the forward
EPS
 For book value I use the book
value of equity
 When calculating the EBITDA and
Sales multiple I subtract the debt
of Conrail
Valuation range
 The transaction multiples
valuation gives a range
 $90.48 - $151.00
 The EPS multiple and the Sales
multiple are close to the industry
average giving a range value very
close to the offer price
 $90.48 - $93.90
 Yet the EPS and Book Value are
very much affected from the
leverage structure and thus are
not a true representation under
multiple valuation
 EBITDA $126.98

12. Valuation multiples explanation
Santa Fe Pacific
 Deals not completed are not
considered due to possible bias
Kansas City Southern Chicago & North Western Southern Pacific Comments
Status
Synergies1
1- As a percent of the targets operating expenses
Business
Risk
Growth
Expectation
Profitability
Leverage
+ × + +
 Synergies are very important as
they affect the bid price. If they
are n/a I discard the deal
22.3% n/a 27.7% 24.5%
 Companies operate in the
railroad industry which is cyclical.
They generate most revenues
from this streamline
+ + + +
 Due to maturity the growth will
come from mergers and
increasing efficiency of assets
+ + + +
 Operating ratio differs a bit, yet
in terms of net income Conrail
does slightly better
+/- +/- +/- +/-
 The D/E ratio is very different. It
leads to huge variation in terms
of value. Under this hypothesis
the best multiples would be the
Sales and EBITDA which are less
affected from the leverage. The
industry is quite capital intensive
so debt is important. Following
on this logic the value range
would be
 $90.48 - $126.98
× × × ×
Peer Group Yes Yes YesNo

13. Question 4
Using DCF valuation, what is the value of Conrail to CSX? (You should use the pre-
announcement share value of Conrail as the stand alone value and then value the
estimated synergies with the DCF method). Describe clearly what cash flows and discount
rate you use and what are these based on. How does this value compare to the offer
made by CSX?

14. DCF value range $93.24 - $93.54
 I start with the synergies as presented in Exhibit 7
 I calculate the Cost of Equity based on the inputs given in the case. In order to address the different
betas for Conrail I make three calculations. One with Conrail’s beta, one with CSX’s beta and one
for the average of both the Conrail and CSX beta’s. The range of the cost of equity is 16.45 –
16.82%. That leads to very similar synergy per share price (see Appendix). The beta of Norfolk
Southern is 1.15. This entity is very efficient and because the new CSX-Conrail company will be
levered even more I did not choose a beta close to Norfolk Southern as it would be not a very good
representative
 Afterwards I calculated the Terminal Value using a growth rate of 3%. Due to a mature market the
inflation rate is a reasonable number. According to an Analyst report of UBS for the railroad
industry a growth rate of 1-3% is very adequate and ensures good financial returns
 Then I discount the value with the cost of equity, for the three scenarios. I add the number and find
the total value of the synergies. Dividing it by the total # of shares I get the value of the synergy per
share
 The stand alone value is $71.00. I add the value of the synergies per share and find the value per
share of Conrail with the synergies included that provides a “roof value” for the bid form CSX
 Synergies are assumed to be interest free. If they are not it would be essential to know the type of
debt being assumed and the repayment attached to it, to value the PV of synergies
Considerations Inputs
 The risk free rate is the US T-bill
of 30-years equal to 6.83%
 The market premium is the yield
on Long-term Corporate Bonds
AAA because both Conrail and
CSX are Class I railroads and it is
equal to 7.40%
 The growth rate, due to a mature
market is equal to 3% (inflation
rate)
 The beta of Conrail and CSX are
very similar. The effect on the
value is very little
Valuation range
 The DCF valuation gives a range
 $93.24 - $93.54
 That is very close to the offer for
the front-end offer. It differs with
$4 for the back-end offer
 The cost of equity calculated for
the beta of Conrail, CSX and both
differentiates is small amounts
leading to a narrow range of the
present value of synergies. I use
the cost of equity as it goes to the
equity (firm) and it is not used for
debt payments
Synergies DCF Valuation ($ millions except per share prices)
1997E 1998E 1999E 2000E 2001E T.Value
Totail Gain in Operating income 188 396 550 567 4342.08
Tax (35%) 65.8 138.6 192.5 198.45 1519.73
FCFE 122.2 257.4 357.5 368.55 2822.35
Cost of equtiy 16.45% 16.45% 16.45% 16.45% 16.45%
PV of FCFE 104.94 189.81 226.39 200.42 1318.00
Sum 2,039.56 Rf 6.83%
# of shares 90.5 M. Premium 7.40%
Synergies per share 22.54 β Conrail 1.3
Pre-bid Price $71.00 Grow th rate 3%
Share price $93.54 C. Equity 16.45%

15. Question 5
Why did CSX make a two-tiered offer? For the shareholders of Conrail, does this make a
difference relative to an all cash offer?

16. Two-tiered offer
 CSX will first acquire 19.7% at $92.50 of the common shares outstanding of Conrail because it has two sideline two major issues:
 The law explicitly requires bidders holding 20% or more of a company’s stock to offer to all shareholders the same price. In order not to
extend the offer to all stockholders CSX has agreed with Conrail’s management to nullify this provision
 Under Act 36 any entity who brings its voting power above the levels of 20%, 33% and 50% possesses the so-called control shares. If the
entity manages through market operations to get this share percentage but without the approval of the board losses its voting rights.
Regardless of the amount of shares that the bidder gets he will be bound to only voting rights of 20%. That would mean a huge
economical expense, a possible majority share ownership to whom there is a limited voting right opportunity
 After the board agrees to get rid off the above mentioned “issues” CSX will proceed with a cash offer to acquire the remaining 20.3% of the
shares at the same price. That would put CSX share ownership at 40%. Looking at the ownership structure before CSX does acquire any shares
there are 4 groups of stock holders, thus there is concentrated ownership structure requiring a big chunk of shares to achieve entity control
 Non-taxable institutions – 48% CSX – 40%
 Tax-paying institutions – 34% Non-taxable institutions – 28.8%
 Individuals – 17% Tax- paying institutions – 20.4%
 Insiders – 1% Individuals – 10.2%
Insiders - .6%
 Assuming that the merger is not blocked in the first instance and that due to the more favorable economic conditions and taking economic
rationality at par, everyone would try to tender so at to get $92.50. That would result is a new ownership structure granting “effective control” to
CSX and making it the largest shareholder, able to influence company decision-making
 The two-tier structure helps to mitigate the free-rider problem
 The tendering shareholders get the higher price
 The non-tendering shareholders are hurt
 P0 - $71.00
 PT - $92.50
 PE - $86.78
 PB - $89.06
Successful Fails
Tender $92.50 $71
Not tender $86.78 $71

17. Why not an all cash offer?
 A two-tier offer is per se constructed in this way as to pay less to the non-tendering stockholders. In this deal $3.348 billion are paid in cash
 The remaining shareowners face major risks. The stock price can go up, but at the current levels it is nearly around its 1-year peek. The chances
of going down are much higher and that would result in a big loss to them and unequal payment for holding the same security as did the frond-
end tenderers
 If the price of the new entity goes up a lot then it is the bidder who loses because it granted shares to the target with a favorable ratio
 CSX financial position as of 1995
 Total current assets - $1.935 billion
 Total current liabilities - $2.991 billion
 Long-term debt - $2.222 billion
 D/E – 40.1%
 CSX’s balance sheet is not at the greatest shape. With only $660 million in cash, and with large operations requiring day-to-day cash infusion it
will go to the capital market to raise financing for its merger plans. It can only allow up to a certain level of debt in its balance sheet, therefore it
is not extending an all cash offer. More debt is unsustainable and that would shoot up the leverage ratio far from the current one making access
in the future at a higher cost of capital
 The operation will add another $3.348 billion of debt, most probably in the form of long-term liabilities (assumed). With revenues being on
steady level and the operating ratio being not the best in the industry, CSX would be extremely leveraged if it ought to extend an all cash offer.
That would not guarantee a more efficient operating entity
 The DCF valuation gives a roof price of $93.54. That is assuming all synergies are realized and paying for all synergies. As a bidder that is not
financially smart, to calculate the synergies entirely in your bid offer, therefore the two-tier offer allows for a part of the synergies to be retained
and not paid to the current shareholders of Conrail
 In the ownership structure of Conrail a large percentage, 48% is hold by non-taxable institutions. That is a very important indicator because they
are more incentivized to tender as they would not pay taxes if they cash out. The 40% front-end offer captures these feature as well because it
allows for a majority of them to tender and keep the full economic remuneration. That is another reason why it is not a full cash offer

18. Question 6
Describe the anti-takeover devices in the deal structure: 1) no-talk clause, 2) poison pill, 3)
break-up fee, 4) lock up option. What are these devices and why would CSX or Conrail
want to have them included?

19. Defensive mechanisms (1)
 A no-talk clause is an agreement between the bidder (CSX) and the seller (Conrail) that bars the later from soliciting a purchase
proposal from a third party
 Yet in this case the board of Conrail has the opportunity to terminate the merger agreement under a # of conditions
 First it risks breaching its fiduciary duties towards the shareholders if it does not consider another put forth. Due to the
leeway of the definition of violation of fiduciary duty under Pennsylvania law the board could uphold this statue for
several year.
 Second the board had the right to terminate the merger agreement in case when a second offer would make it unlikely
for CSX to close the deal or win the opt-out vote
 In the way the no-talk clause is structured it mirrors more a “window shop” provision in the sense that the board is not obliged
to go and search for other potential bidders but it can value offers if they are presented to them
No-talk
clause
Poison
pill
 A poison pill (rights plan) is a security that gives holders the rights to purchase stock at a discount in the form of common stock
dividends. It can be adopted without shareholder approval and its an exclusive mechanisms useable by the board of directors
 It wards-off potential hostile offers
 The poison pill provision imposes losses on the acquirer and dilutes his/her equity provision
 In the Conrail case the trigger level was at 10% and the discount factor was 50% of the current market price. The mechanism is
highly effective if the board does not “like” the bidder but due to the friendly nature of the merger and the fact that after two
year’s the current CEO of Conrail would take over the company the board decided not to use the pill
Break-
up fee
 A break-up fee is a common feature used in merger agreements and it serves two main purposes
 If the seller decides to back-off from the deal it will serve as a compensation for the bidder to cover costs (legal
counseling, financial advisors) and for the possible reputational damages
 It can discourage other bidders as they would have to offer a counter-bid that would cover the amount payable due to
the termination, thus increasing the costs and making the offer less attractive
 The industry average is about 1-3%. In the CSX-Conrail merger the amount is $300 million. That represents 3.6% of the merger
value. It is a bit higher than the average and I believe that is for two purposes. First the value of the entire operation is very big
and therefore a deviation is acceptable and second knowing the interest shown from Norfolk Southern, CSX wants to make it as
hard as possible for them to get a grip of Conrail

20. Defensive mechanisms (2)
 A lock-up stock option is the right/option to buy authorized but unissued shares. It is a common mechanism to protect
friendly deals
 Conrail granted to CSX the option to buy 15.96 million newly issued common shares which would represent 14.99% of the
common shares outstanding
 The purchase price was $92.50 (equal to the offer price)
 The advantages of the lock-up stock option are
 It allows the initial bidder to profit from a higher bid from a third party
 It grants the bidder the option to influence the target’s shareholder vote
Lock-up
option
 Conrail had a poison pill already in place, before CSX presented it offer. The rationale to have such a defense mechanism is to:
 Ward-off unsolicited, coercive, and preclusive offers that would lead to a change of control or corporate policy. This mechanism is used
to ensure that directors have the right to run the business as they best believe and to stop current shareholders from tendering their
shares to third parties such as T. Boone Pickens Jr.
 Conrail has a classified board and that does give significant protection to the board members and makes it very difficult to control it
 CSX wants to include the above mentioned provisions (break-up fee, no-talk and lock-up ) as to:
 Recover the economical expenses and reputational damages in case the deal goes bust
 To ensure the exclusivity of the deal and to deteriorate other potential bidders
Classified
board
 A classified board is a structure where directors serve for different time lengths
 Conrail’s board member structure is such that only one-third of them were elected each year meaning that a bidder who
would want to start a proxy fight was unable to get a majority of board member within the first-year
 It would be difficult for CSX to get the merger concluded if the board would be against it because they could upheld the
provisions (poison pill, fair value) for a long period

21. Appendix
Synergies DCF Valuation ($ millions except per share prices)
1997E 1998E 1999E 2000E 2001E T.Value
Totail Gain in Operating income 188 396 550 567 4342.08
Tax (35%) 65.8 138.6 192.5 198.45 1519.73
FCFE 122.2 257.4 357.5 368.55 2822.35
Cost of equtiy 16.82% 16.82% 16.82% 16.82% 16.82%
PV of FCFE 104.61 188.61 224.25 197.89 1297.25
Sum 2,012.61 Rf 6.83%
# of shares 90.5 M. Premium 7.40%
Synergies per share 22.24 β CSX 1.35
Pre-bid Price $71.00 Grow th rate 3%
Share price $93.24 C. Equity 16.82%
Synergies DCF Valuation ($ millions except per share prices)
1997E 1998E 1999E 2000E 2001E T.Value
Totail Gain in Operating income 188 396 550 567 4342.08
Tax (35%) 65.8 138.6 192.5 198.45 1519.73
FCFE 122.2 257.4 357.5 368.55 2822.35
Cost of equtiy 16.64% 16.64% 16.64% 16.64% 16.64%
PV of FCFE 104.77 189.21 225.31 199.15 1307.58
Sum 2,026.02 Rf 6.83%
# of shares 90.5 M. Premium 7.40%
Synergies per share 22.39 β Avg. 1.325
Pre-bid Price $71.00 Grow th rate 3%
Share price $93.39 C. Equity 16.64%
Inputs
 The risk free rate is the US T-bill
of 30-years equal to 6.83%
 The market premium is the yield
on Long-term Corporate Bonds
AAA because both Conrail and
CSX are Class I railroads and it is
equal to 7.40%
 The growth rate, due to a mature
market is equal to 3% (inflation
rate)
 The beta of Conrail and CSX are
very similar. The effect on the
value is very little
 For the first figure the beta of CSX
is used. It leads to a Cost of equity
equal to 16.82% and a share price
of $93.24
 For the second figure the average
beta of CSX and Conrail is used. It
leads to a Cost of equity equal to
16.64% and a share price of
$93.39. Levering and Un-Levering
does not lead to significant
differences