Shareholders Derail CSX, Conrail Deal

Conrail Inc. shareholders on Friday derailed a planned $9.3-billion railroad merger with CSX Corp. with a thumping rejection of a key provision to let the deal proceed.

The vote handed a victory to Norfolk Southern Corp., which is pursuing a rival $10.3-billion bid for Conrail.

But it also created at least a temporary stalemate in which neither side can complete a deal, and all three companies are determined not to give up.

“It is clearly the Conrail board’s intent to see through the CSX-Conrail merger,” Conrail Chairman David LeVan said in announcing the defeat at a news conference after the meeting in Philadelphia. The company will not agree to a deal with Norfolk Southern, he said.

Shares of Conrail were unchanged at $103.50; CSX shares gained $1.75 to close at $46.75; and Norfolk, Va.-based Norfolk Southern shares lost 12.5 cents to close at $88. All trade on the New York Stock Exchange.

At stake is a merger that would create the nation’s third-largest railroad and a stronghold over rail freight in the East, where Conrail’s track is concentrated.

Richmond, Va.-based CSX, which already owns nearly 20% of Conrail stock, failed to get the shareholder approval it needed to buy an additional 20% under Pennsylvania’s anti-takeover laws. CSX is offering $110 a share in cash for that installment and says it will buy the remaining 60% of Conrail for stock in a deal valued at nearly $9.7 billion, or about $105.57 a share.

Norfolk Southern is offering $115 in cash for all Conrail stock. It claimed to have received the support of at least 53% of the shares voted Friday, which it called a strong endorsement for its offer.