EXHIBIT (a)(10)
December 18, 1996
Board of Directors
Conrail Inc.
2000 Market Street
Philadelphia, PA 19101-1422
Gentlemen and Mesdames:
We understand that Conrail Inc. (the "Company"), CSX Corporation
("CSX") and Green Acquisition Corp., a wholly- owned subsidiary of CSX
("Acquisition Sub"), have entered into an Agreement and Plan of
Merger, dated as of October 14, 1996 as amended as of November 5,
1996, and as further amended as of December 18, 1996 (collectively,
the "Merger Agreement"). Pursuant to the Merger Agreement, on November
21, 1996, Acquisition Sub accepted for payment pursuant to an offer to
purchase (the "First Offer") 19.9% of the issued and outstanding
shares of common stock, par value $1 per share (the "Company Common
Stock"), and Series A ESOP Convertible Junior Preferred Stock
(together with the Company Common Stock, the "Shares") of the Company,
for $110.00 per share net to the seller in cash (the "Offer
Consideration"). The terms of the Merger Agreement provided, among
other things, that: (i) if certain conditions are satisfied,
Acquisition Sub will accept for payment pursuant to an offer to
purchase (the "Second Offer" and, together with the First Offer, the
"Offer") additional Shares such that the Shares purchased in the First
Offer and the Second Offer will total a number of Shares (the
"Designated Number") equal to 40% of the fully-diluted Shares,
excluding the Option Shares referred to below (the "Diluted Shares");
and (ii) upon the receipt of certain shareholder approvals and
satisfaction of other conditions thereto, pursuant to the First Merger
and the Second Merger (each as defined in the Merger Agreement and
collectively referred to herein as the "Merger," and the "Merger"
together with the Offer, the "Transaction"), the surviving corporation
will become a wholly-owned subsidiary of CSX and each outstanding
share of the Company Common Stock, other than shares held in treasury
or held by CSX or its subsidiaries, will be converted into the right
to receive (x) 1.85619 shares of common stock, par value $1.00 per
share (the "CSX Common Stock"), of CSX (the "Stock Consideration" and,
together with the Offer Consideration,
the "Merger Consideration," and the Merger Consideration, together
with the Offer Consideration, the "Consideration"); and (y)
convertible preferred stock of CSX ("Additional Securities") having a
fully-distributed trading value equal to $16 per Share to be
determined in acordance with the terms of the Merger Agreement;
provided that if less than the Designated Number of Shares are
purchased pursuant to the Offer, the Consideration will be adjusted so
that when taken together with the Offer, 60% of the Fully Diluted
Shares will each have been converted into the right to receive the
Merger Consideration, and 40% of the Fully Diluted Shares will have
received or been converted into the right to receive an amount of cash
equal to the Offer Consideration. The terms and conditions of the
Offer and the Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Consideration to be
received by the holders of Shares pursuant to the Offer and the
Merger, taken together, is fair from a financial point of view to such
holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly-available financial
statements and other information of the Company
and CSX, respectively;
(ii) reviewed certain internal financial statements and
other financial and operating data concerning the
Company and CSX prepared by the managements of the
Company and CSX, respectively;
(iii) reviewed certain financial projections for CSX
prepared by the management of CSX;
(iv) reviewed certain financial projections, including
estimates of certain potential benefits of the
proposed business combination, prepared by the
management of the Company;
(v) discussed, on a limited basis, the past and
current operations and financial condition and the
prospects of the Company and CSX with senior
executives of the Company and CSX, respectively;
(vi) reviewed the reported prices and trading activity
for the Company Common Stock and the CSX Common
Stock;
(vii) compared the financial performance of the Company
and CSX and the prices and trading activity of the
Company Common Stock and the CSX Common Stock with
that of certain other comparable, publicly-traded
companies and their securities;
(viii) reviewed the financial terms, to the extent
publicly available, of certain comparable
acquisition transactions;
(ix) participated in discussions among representatives
of the Company, CSX and their financial and legal
advisors;
(x) reviewed the Merger Agreement and certain related
documents; and
(xi) performed such other analyses and considered such
other factors as we have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the
purposes of this opinion. With respect to the financial projections,
including estimates of certain potential benefits of the proposed
business combination, we have assumed that they have been reasonably
prepared on bases reflecting the best currently- available estimates
and judgment of the future financial performance of the Company and
CSX, respectively. We have not made any independent valuation or
appraisal of the assets or liabilities of the Company or CSX, nor have
we been furnished with any such appraisals. In arriving at our
opinion, we have assumed (i) that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended, and (ii) that obtaining all the
necessary regulatory and governmental approvals for the Merger will
not have an adverse effect on the Company, CSX or on the trading value
of the CSX Common Stock or the Additional Securities. We have assumed
that the Offer and the Merger will be consummated substantially in
accordance with the terms set forth in the Merger Agreement, without
any waiver of any material terms or conditions by any party thereto.
Our opinion is necessarily based on economic, market and other
conditions in effect on, and the information made available to us as
of, the date thereof. In arriving at our opinion, we were not
authorized to solicit, and did not solicit, interest from any party
with respect to the acquisition of the Company or any of its assets.
We have been engaged to provide this opinion to the Board of Directors
of the Company in connection with this transaction and will receive a
fee for our services. In the past, Morgan Stanley & Co. Incorporated
and its affiliates have provided financial advisory and financing
services for the Company and CSX and have received fees for the
rendering of these services.
It is understood that this letter is for the information of the Board
of Directors of the Company and may not be used for any other purpose
without our prior written consent, except that this opinion may be
included in its entirety in any filing made by the Company with the
Securities and Exchange Commission with respect to the Offer and the
Merger. In addition, we express no opinion and make no recommendation
as to whether the holders of the Company Common Stock should tender
such shares pursuant to the Offer or vote at the stockholders' meeting
held in connection with the Merger. As you know, on October 24, 1996,
Norfolk Southern Corporation commenced a tender offer (the "NSC
Offer") for all of the outstanding Shares at a price per Share of $100
net in cash, which per Share price was increased to $110 on November
8, 1996. Counsel to the Company has advised the Company's Board of
Directors that the fact that the NSC Offer is subject to, among other
conditions, the termination of the Merger Agreement, and that the
Company is currently contractually prohibited from terminating the
Merger Agreement pursuant to Section 4.2(b) thereof creates
significant legal uncertainty relating to the consummation of the NSC
Offer, Counsel to the Company has advised the Company's Board of
Directors that, under Pennsylvania law, in considering a proposed
business combination, the Company's Board of Directors is empowered to
take into account the long-term interests of the Company and all of
its constituencies, not solely the highest price for the Company's
Shares. Accordingly, at your request, in rendering our opinion, we did
not address the relative merits of the Transaction, including said
Section 4.2(b), the NSC Offer and any alternative potential
transaction.
Based on the foregoing, we are of the opinion on the date thereof that
the Consideration to be received by the holders of Shares pursuant to
the Offer and the Merger, taken together, is fair from a financial
point of view to such
holders (other than CSX, Acquisition Sub or any other subsidiary of
CSX).
Very truly yours,
MORGAN STANLEY & CO.,
INCORPORATED,
By:
/s/ MAHMOUD A. MAMDANI
---------------------------
Mahmoud A. Mamdani
Managing Director