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CS8 - Norfolk Southern

1. The case study discusses a potential merger between Canadian Pacific (CP) and Norfolk Southern (NS). CP wants to acquire NS to achieve operational synergies and revenue growth opportunities through an expanded single-line rail network. There is a compelling economic rationale for the merger if the projected synergies and benefits in Table A are reasonably achievable. 2. Using a 7.9% WACC and 36% tax rate, the present value of the projected pre-merger operational improvements is calculated and compared to the present value of the post-merger combination synergies to determine if the merger is financially beneficial. 3. The market reactions to rumors of a pending offer and the initial

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586 views1 page

CS8 - Norfolk Southern

1. The case study discusses a potential merger between Canadian Pacific (CP) and Norfolk Southern (NS). CP wants to acquire NS to achieve operational synergies and revenue growth opportunities through an expanded single-line rail network. There is a compelling economic rationale for the merger if the projected synergies and benefits in Table A are reasonably achievable. 2. Using a 7.9% WACC and 36% tax rate, the present value of the projected pre-merger operational improvements is calculated and compared to the present value of the post-merger combination synergies to determine if the merger is financially beneficial. 3. The market reactions to rumors of a pending offer and the initial

Uploaded by

Mikaela Anderson
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
  • Case Study: Canadian Pacific's Bid for Norfolk Southern

Jindal School of Management

The University of Texas at Dallas


FIN 6356 – Mergers & Acquisitions

Case Study 8 (CS8): Canadian Pacific’s Bid for Norfolk Southern (9-216-057)

Get the case study from your HBS course pack and answer the following questions:

1. Why does Canadian Pacific (CP) want to acquire Norfolk Southern (NS)? Do you believe
there is a compelling economic rationale for the merger?

2. What is the present value of the projected merger benefits in Table A as of December 31,
2015? Are the projections reasonable? How does the present value of the pre-merger
operational improvements compare to the post-merger combination synergies? (Please
assume a railroad WACC of 7.9% and a corporate tax rate of 36%.)

3. Using the data in case Exhibit 9b, analyze the changes in market values of CP and NS in
response to the rumors of a pending offer (11/06/15 – 11/09/15) and the initial CP offer
(11/17/15 - /11/18/15). Is the market’s reaction consistent with your valuation of the
projected merger benefits from Question 2?

4. What is the value of CP’s revised offer on December 8 (before CP “sweetened” its offer by
adding the CVR security)? In your analysis assume the following:
a. A valuation date of December 31, 2015, and year-end cash flows;
b. The stand-alone (pre-merger) value of CP and NS are $134 and $80 per share,
respectively;
c. NS shareholders approve the merger and the Surface Transportation Board (STB)
approves it;
d. Investors expect 100% of the projected merger benefits to be realized. What is the
value if investors expect none of the projected merger benefits to be realized?
e. NS must debt finance 100% of the cash portion of the revised offer ($32.86 per
share).

5. Why did CP include the CVR security in its “sweetened” offer on December 16? What is
CP’s motivation and how does the CVR sweeten the deal?

6. As a Norfolk Southern shareholder, would you accept CP’s “sweetened” offer?

This is an individual assignment. Guidelines on Written Assignments apply. Grading: pass/fail.

Last edited: August 22, 2022

Jindal School of Management The University of Texas at Dallas FIN 6356 – Mergers & Acquisitions Case Study 8 (CS8): Canadian

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