Conrail Seeks Dismissal Of Merger Lawsuit

Lawsuits should be based on principles and statutes; this lawsuit is based on frustrations and spite, Conrail said in its motion filed with US District Court for Eastern Pennsylvania.

Conrails motion said Norfolk Southerns suit, filed last week, was legally deficient and had no basis for a challenge either under Pennsylvania state law or federal law.

Norfolk Southern had no immediate comment on the motion.

Also on Monday, some takeover stock specialists said doubts were growing Norfolk Southern could prevail in court.

But they said Conrail shareholders might be able to force a better deal by rejecting a key corporate charter change at a November 14 Conrail shareholders meeting, or by withholding their shares from an initial CSX tender offer for 19.9 per cent of Conrail, which expires November 15.

 

One trader said shareholders may reject a proposal, key to the deal with CSX, that would waive a Pennsylvania anti-takeover law. A rejection could force CSX to raise its offer to ultimately win shareholder approval, he said.

Another said there would be no reason to accept the tender while Conrails stock price, boosted by Norfolk Southerns offer, trades higher than the tender offer price.

Conrail shares traded on the New York Exchange up 25 cents at $93.675 at midday, which was well below highs of $97.50 hit immediately after Norfolk Southern announced its cash bid of $100 a share, or about $9 billion, last Wednesday.

Conrails proposed merger with CSX is based on a $92.50 per share cash and stock payment by CSX.

A court hearing on the case is scheduled for November 12. In its motion, Conrail said Norfolk Southern was not a legitimate shareholder for purposes of filing its suit, which alleges Conrails board violated Pennsylvania law by failing to act in the best interests of shareholders.

Norfolk Southern had said the board should have known about, and seriously considered, its interest in buying Conrail before cementing the deal with CSX, which contains several provisions to discourage a break-up of the merger.

Norfolk Southern is suing as a spurned suitor, not a shareholder, Conrail said.

Conrail, which is incorporated in Pennsylvania, also said changes in its charter to facilitate the deal were specifically authorised under that states corporate law.

It said the law grants broad authority