SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14D-1
(Amendment No. 2)
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
Conrail Inc.
(Name of Subject Company)
Norfolk Southern Corporation
Atlantic Acquisition Corporation
(Bidders)
Common Stock, par value $1.00 per share
(Including the associated Common Stock Purchase Rights)
(Title of Class of Securities)
208368 10 0
(CUSIP Number of Class of Securities)
Series A ESOP Convertible Junior
Preferred Stock, without par value
(Including the associated Common Stock Purchase Rights)
(Title of Class of Securities)
Not Available
(CUSIP Number of Class of Securities)
James C. Bishop, Jr.
Executive Vice President-Law
Norfolk Southern Corporation
Three Commercial Place
Norfolk, Virginia 23510-2191
Telephone: (757) 629-2750
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidder)
with a copy to:
Randall H. Doud, Esq.
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 735-3000
This Amendment No. 2 amends the Tender Offer Statement on Schedule
14D-1 filed on October 24, 1996, as amended (the "Schedule 14D-1"), by
Norfolk Southern Corporation, a Virginia corporation ("Parent"), and its
wholly owned subsidiary, Atlantic Acquisition Corporation, a Pennsylvania
corporation ("Purchaser"), relating to Purchaser's offer to purchase all
outstanding shares of (i) Common Stock, par value $1.00 per share (the
"Common Shares"), and (ii) Series A ESOP Convertible Junior Preferred
Stock, without par value (the "ESOP Preferred Shares" and, together with
the Common Shares, the "Shares"), of Conrail Inc. (the "Company"),
including, in each case, the associated Common Stock Purchase Rights, upon
the terms and subject to the conditions set forth in the Offer to Purchase
dated October 24, 1996 (the "Offer to Purchase") and in the related Letter
of Transmittal (which, together with any amendments or supplements thereto,
constitute the "Offer"), copies of which were filed as Exhibits (a)(1) and
(a)(2) to the Schedule 14D-1, respectively. Unless otherwise defined
herein, all capitalized terms used herein shall have the respective
meanings given such terms in the Offer to Purchase.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the Bidder.
Item 5 is hereby amended to add the following:
(b) On October 24, 1996, Stephen C. Tobias, Executive Vice
President-Operations of Parent, presented a speech to the American Railroad
Conference discussing, among other things, Parent's analysis of the
perceived competitive benefits of the Offer and the Proposed Merger as
compared with the Proposed CSX Transaction. A copy of the text of this
speech is filed as an exhibit hereto.
On October 30, 1996, Parent distributed a summary of Parent's
analysis of the perceived competitive situation in the United States rail
industry and Parent's analysis of the perceived competitive benefits of the
Offer and the Proposed Merger as compared with the Proposed CSX
Transaction. A copy of the analysis is filed as an exhibit hereto.
In addition, on October 30, 1996 Parent distributed a memorandum
describing Parent's analysis of the perceived benefits of the Offer and the
Proposed Merger to the Company's customers and shareholders as compared
with the Proposal CSX Transaction. A copy of the memorandum is filed as an
exhibit hereto.
Item 10. Additional Information.
Item 10 is hereby amended to add the following:
(e) On October 26, 1996, Parent distributed a memorandum
summarizing the Pennsylvania Litigation. A copy of the memorandum is filed
as an exhibit hereto.
Item 11. Material to be Filed as Exhibits.
Item 11 is hereby amended to add the following:
(a)(14)Text of speech made to the American Railroad Conference on
October 24, 1996.
(a)(15)Competitive Analysis dated October 30, 1996.
(a)(16)Transaction Memorandum dated October 30, 1996.
(a)(17) Litigation Memorandum dated October 26, 1996.
SIGNATURE
After due inquiry and to the best of its knowledge and belief, the
undersigned certifies that the information set forth in this statement is
true, complete and correct.
Dated: October 31, 1996
NORFOLK SOUTHERN CORPORATION
By: /s/ JAMES C. BISHOP, JR.
Name: James C. Bishop, Jr.
Title: Executive Vice President-Law
ATLANTIC ACQUISITION CORPORATION
By: /s/ JAMES C. BISHOP, JR.
Name: James C. Bishop, Jr.
Title: Vice President and General Counsel
EXHIBIT INDEX
Exhibit
Number Page
(a)(14)Text of speech made to the American Railroad Conference on
October 24, 1996.
(a)(15)Competitive Analysis dated October 30, 1996.
(a)(16)Transaction Memorandum dated October 30, 1996.
(a)(17) Litigation Memorandum dated October 26, 1996.
Remarks by: Stephen C. Tobias
Executive Vice President - Operations
Norfolk Southern Corporation
Before the: American Railroad Conference
Palm Springs, California
October 24, 1996
Good evening. David Goode extends his regrets for
missing this engagement. He felt very strongly that this
conference is an important forum for key industry issues as
we manage change in our industry. However, as you can
imagine, his agenda has quickly become crowded, and I am
delighted he ask me to represent him.
I know you'll bear with me if I take this opportunity
to present Norfolk Southern's case for combining with
Conrail, because I believe it goes to the heart of this
conference -- customers -- service.
So just what is going on in the East? And more
importantly what does it mean to the shipping community?
As you no doubt know, NS is offering $100 per share,
all cash for CR. This is cash up front, with all shares
held in a voting trust. This is great news for Conrail
shareholders. It s also good news for employees and
customers of both NS and CR.
We have thought long and hard about this opportunity.
We know Conrail's operations and markets. And over the past
few years, we have partnered with Conrail on a number of
initiatives to more closely integrate our operations and
marketing to offer better service to customers of both
lines. While these joint projects have been successful, we
have long believed that the strengths of both railroads
could be best leveraged by joining forces. We have been
ready to move for some time, but Conrail was not. Clearly,
however, the time is now right.
We believe and others agree that NS is the best
strategic partner for Conrail. The combination will enable
us to build upon our strengths and existing partnerships and
expand upon the joint initiatives we have already
undertaken.
With Conrail, we can extend our historical dedication
to safety, operating results and service to more customers,
more locations, more employees and more stockholders.
Not only will the combination provide Norfolk Southern
with greater opportunities for growth and improved
efficiency it will give our customers better access to the
Northeast and improve single line coverage in the East. For
Conrail shareholders, it offers the highest value at the
lowest risk. For Conrail employees, it provides a
combination with the safest railroad and exciting
prospects for growth and job opportunities, in short-
security.
The implications of the Conrail battle go further than
the three companies involved.
It marks a fundamental point of decision for the rail
industry.
Do we want a single railroad to dominate half the
country? Or do we want strong, balanced competition
throughout the country that fosters growth as is the case in
the west, where UPSP and BNSF are almost evenly matched.
I would argue balanced competition -- like we believe
NS/CR will promote -- leads to a stronger, healthier overall
rail system.
Railroads could consolidate in a way where if customers
wanted to ship, they would have to ship on the railroad s
terms. But then, all that would be left would be the
customers who had no other choice but to ship by rail.
Instead, our object is to have the customers chose, no
-- demand rail service, as their preferred way of shipping
goods, rather than rail as the rock-bottom cheapest mode
available, or because their commodity cannot be hauled any
other way.
Customers have lost their tolerance for interchange
delays, split responsibility for shipments, the lack of a
single point of contact -- this is why I think we need, and
will see, more consolidations -- but our own conduct in
proposing and executing these consolidations as an industry
will determine whether or not we succeed or fail.
Mergers are an opportunity to continue to reduce our
costs, to create new and improved routes, to inaugurate new
services, to put traffic on the railroad that is currently
on the highway or the river, to expand our ports. It means
creating bigger companies, but companies whose willingness
and ability to compete is just as great as their size. For
Norfolk Southern, a merger with Conrail is an opportunity to
become a viable competitor in the Southeast to Northeast
lanes where CSX -- because they have single line service --
has an advantage.
And if promoting that competition means actually
listening to shipper requests for additional carrier choice,
so be it. That is the price of consolidation.
But if we allow mergers to result in a single railroad
that dominates major industrial centers, we are undermining
ourselves. Consolidations that strengthen competitors and
competition and improve service not only benefit existing
customers, but attract new customers to the rails.
CSX and Norfolk Southern recently competed head-to-head
to locate Ford s new Mixing Centers -- a dramatic
improvement in automotive shipping by rail -- on our
railroads. Norfolk Southern fared well in the competition -
- we were awarded all four mixing centers -- but that
competition yielded major benefits to the customer, in price
and in service, and to Norfolk Southern in many additional
car loads. Promoting customer choice and competition is why
Norfolk Southern is willing to expand competition in the New
York area.
If we use mergers as a vehicle to limit customer
choice, to constrain shipping options, we are hurting our
industry. New routes and new markets mean new services. We
think we can take a lot of trucks off of I 95 with direct
Philadelphia and Baltimore service to the Southeast. And I
am just as sure that CSX, which already has direct routes
between these cities, will be fighting for that same
business.
If we use mergers just to provide more efficient
service, and in the process lose touch with our customers,
we are hurting ourselves. A focus on service, innovation,
and most importantly, safety, is what will eventually
sustain this industry long after we have wrung out the last
merger-related cost-savings.
Railroads have a good winning streak going. The smooth
approval process of both the BN/SF and UP/SP merger
demonstrates that. But many shippers are dissatisfied with
their level of service and the responsiveness of their
railroads.
We have the opportunity to satisfy, to delight those
shippers, by using consolidations to strengthen competition
and competitors, not to create dominance. We need to use
these consolidations to achieve levels of performance so
superior that the shipping public demands our service. We
have the capabilities, and now we have the opportunities.
It is up to us to make the most of them.
The CSX/CR transaction is simply unacceptable from the
standpoint of an overall competitive rail network in the
East. The overwhelming market dominance and single-line
monopoly of the CSX proposal fails to match up with the
relative competitive equity of a Norfolk Southern-Conrail
combination and the creation of an eastern rail system
comparable to that now created in the West.
We are confident that we can obtain regulatory approval
of this combination because we are committed to maintain a
balanced, competitive rail system.
To sum up, the transaction we are proposing is better
for shippers, for Conrail and Norfolk Southern shareholders,
for employees of both railroads, for the communities both
systems serve, and for the public interest.
I am convinced our proposal will ultimately serve the
industry and the customers better, and I ask for your
support as we bring together a winning combination, that
promotes growth, our industry's foundation for the future.
I appreciate the opportunity to address you and hope
that my thoughts will have some import in tomorrow's agenda.
CSX/CR IS NOT UP/SP
FACTS
WESTERN RAILROADS BALANCED
A. In the West most major markets already were served
by both BNSF and UP before UP/SP.
1. only exceptions: New Orleans and Salt Lake City
B. Existing traffic flows and train schedules were in
place to form the critical mass necessary for
efficient BNSF operations.
1. competitive service hampered by low volumes
2. costs per unit higher with low volumes
C. The competitive rail infrastructure was largely in
place.
1. yard facilities
2. management
3. customer service
4. communications
5. repair facilities
D. Competition could be enhanced by providing
shorter, more efficient routes and industry
access.
I. NO BALANCE IN EAST
A. Competitive alternatives do not exist in most
northeastern markets.
1. In many markets, CR is the only Class 1 rail
carrier.
a) New York City
b) Northern New Jersey
c) Boston
2. At many points in the East, CSXT is the
alternative network to Conrail. CSXT and CR are
the only Class 1 rail carriers in many major
markets.
a) Baltimore
b) Dayton
c) Indianapolis
d) Philadelphia (despite CP s minor presence)
e) Pittsburgh
f) Wilmington
g) Youngstown
B. Most rail competition that does exist in the
Northeast is fragile.
1. CP/D&H and NYS&W/DO into Northern New Jersey
2. Wheeling and Lake Erie into Pittsburgh
C. CSXT has the competitive infrastructure and
traffic base to give it the best starting point to
provide competitive enhancements through trackage
rights, etc. Anyone else would be non-viable.
D. CSXT already is significantly larger than NS:
1. 1995 operating revenues
a) CSXT 22% larger than NS
2. 1995 carloads handled
a) CSXT 21% larger than NS
CSX/CR IS NOT UP/SP
RESULTS
II. LIMITED TRACKAGE RIGHTS PROVIDE ADEQUATE WESTERN SOLUTION
A. BNSF can use its existing infrastructure to
support the trackage/haulage rights and switching
granted to it in UP/SP and can build on its
existing traffic base.
B. Even with an existing base of operations and
traffic, implementation of the UP/SP conditions is
moving slowly.
C. The western rail system will be reasonably
balanced.
1. 1995 operating revenues
a) 54% UP $9.54 billion
b) 46% BNSF $8.17 billion
2. 1995 carloads handled
a) 58% UP 10,097,760 carloads
b) 42% BNSF 7,244,418 carloads
3. route miles
a) 55% UP 38,366 miles
b) 45% BNSF 31,326 miles
III. OVERWHELMING CSX/CR DOMINANCE IN EAST
A. CR s existing lock on parts of the Northeast will
be strengthened.
New York -- CR handled 83% of 1994 NY rail revenue
New Jersey -- CR handled 64% of 1994 NY rail revenue
Massachusetts -- CR handled 63% of 1994 NY rail
revenue
B. CSX/CR would control Class I track in most overlap
states.
1. Maryland -- 98%
2. Ohio -- 73%
3. Pennsylvania -- 99%
4. West Virginia -- 78%
5. Delaware -- 100%
C. CSX/CR would completely dominate the eastern rail
system.
1. 1995 operating revenues
a) 68% CSX/CR $8.4 billion
b) 32% NS $4.0 billion
2. 1995 carloads handled
a) 67% CSX/CR 9,284,027 carloads
b) 33% NS 4,459,808 carloads
3. route miles
a) 67% CSX/CR 29,346 miles
b) 33% NS 14,415 miles
D. CSX/CR is comparable to BNSF and UP merging in the
Gulf Coast with KCS as the only competitive
alternative.
October 30, 1996
NORFOLK SOUTHERN'S OFFER TO ACQUIRE CONRAIL
Norfolk Southern has long believed that a combination with Conrail
would provide more efficient and competitive freight rail service to
our customers as well as enhanced growth opportunities for the
Corporation. We expressly and on more than one occasion over the
past several years shared this view with Conrail management. Until
two weeks ago, however, Conrail management indicated its desire for
Conrail to remain independent. Then, on October 15, Conrail entered
into an agreement to merge with CSX. Our counter-offer, which we
believe is superior to the CSX/Conrail proposal on every point, was
made so that Norfolk Southern and Conrail employees, customers, and
shareholders and the general public can realize the many real
benefits of a Norfolk Southern/Conrail combination.
Following is a brief overview of how and why we believe that Conrail,
Norfolk Southern and all of their constituencies will profit from our
proposed transaction.
SHIPPERS AND THE GENERAL PUBLIC
A Norfolk Southern/Conrail combination will create a stronger, more
competitive eastern transportation market and a far more balanced
freight rail system than the proposed CSX/CR merger.
Norfolk Southern customers will obtain better access to the Northeast
and improved single system coverage in the East. Conrail customers
will obtain the benefit of a combination with the most efficient and
best managed railroad.
In addition to competitive pricing resulting from volume
efficiencies, we will provide a level of service that only a broad
network can provide. We will be able to undertake more initiatives
such as our recent vehicle distribution agreement with Ford. We will
be able to improve intermodal service between the Northeast and
Southeast, making our intermodal network more competitive with
alternative truck services.
Norfolk Southern is committed to provide, at and between the largest
markets, solutions that will ensure a competitive rail
infrastructure. We are not assuming market share gains from a
monopolistic position, but from providing better service to our
customers.
CONRAIL SHAREHOLDERS
Our offer is for $100 per share in cash for each Conrail share. This
offer is not subject to approval by the Surface Transportation Board,
except as to informal approval of a voting trust.
By contrast, the proposed CSX transaction would offer Conrail
shareholders a substantially lower value per share, based on the
current market value of CSX shares. Moreover, the 60 percent of
Conrail shareholders who would receive payment in CSX stock, would
only receive payment if and when the Surface Transportation Board
approves a CSX/CRR merger.
NORFOLK SOUTHERN SHAREHOLDERS
A combination with Conrail will provide significant earnings
improvement from transaction synergies -- both operating savings and
increased revenues. These synergies will add significantly to
earnings per share resulting in an earnings per share growth rate
more than 50 percent higher than Norfolk Southern would have achieved
alone.
Norfolk Southern received financing commitments from J.P. Morgan and
Merrill Lynch for $2 billion each towards the $11 billion total
acquisition cost and these banks expect the remainder of the
financing to be in place promptly. On a pro forma basis, total debt
would be $13.2 billion, with an initial total debt/total
capitalization ratio of 72 percent.
October 30, 1996
Philadelphia Litigation
Norfolk, Virginia -- October 26, 1996
M E M O R A N D U M
Norfolk Southern initiated, at the same time it filed its
tender offer for the purchase of Conrail at $100 per share, litigation in
the United States District Court for the Eastern District of Pennsylvania.
The object of the litigation is to give Conrail shareholders, if they wish,
the opportunity to accept Norfolk Southern's $100 per share offer.
The litigation is not, as popularly reported, an attack on
the Pennsylvania anti-takeover laws. Norfolk Southern's complaint does not
seek the invalidation of a single provision of Pennsylvania law. Rather,
Norfolk Southern alleges that under Federal securities laws, under
Pennsylvania corporate law, and under Conrail's own articles and bylaws,
the actions taken by Conrail and CSX to keep Conrail shareholders from
having the opportunity to accept Norfolk Southern's $100 per share offer
are improper and illegal.
When a corporation such as Conrail has decided it will not
remain independent, Norfolk Southern believes that the law requires it to
act fairly in the interests of its shareholders and other constituencies,
as opposed to acting for the personal interests of officers and directors.
The complaint alleges that Conrail failed to disclose to its
shareholders that a better offer was available from Norfolk Southern. It
also alleges that as recently as 1994 it had been receptive to a
combination with Norfolk Southern; that the CSX transaction is increasing
the Conrail CEO's salary and bonus from $539,278 to approximately
$2,497,500; that the $300,000,000 breakup fee and the 16 million share
option [as opposed to being compensatory] actually penalize better offers;
that Conrail may not take corporate actions (such as selective application
of a provision of the Pennsylvania law or of its poison pill) designed fend
off all other proposals, no matter how good; and that Conrail has
impermissibly acted to restrict the rights of its shareholders to elect
directors who can pass on combination proposals.
The complaint alleges that such actions have breached
Conrail's fiduciary duties to its stockholders, that the attempt to tie the
hands of directors who may be elected in the future violates Pennsylvania
law and Conrail's own articles and bylaws, that the failure to disclose
some of these matters violates the Federal securities laws, and that a
provision of the Pennsylvania anti-takeover law does not permit selective
opting out -- a corporation is either in or out.
The complaint seeks declaratory and injunctive relief and
damages. In view of the CSX/Conrail timetable, Norfolk Southern is also
seeking expedited proceedings, in order to get relief before the
transaction is already accomplished. A hearing has been set for November
12.
