Report: CSX in CEO discussions with Harrison

Friendly deal with activist investor would avoid proxy battle
RELATED TOPICS: CSX | OPERATIONS | MERGERS | EHH
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Hunter Harrison, Canadian National Railway
E. Hunter Harrison
Jim McClellan
NEW YORK — CSX Transportation may favor making E. Hunter Harrison its chief executive, the Wall Street Journal reports.

The former Canadian Pacific CEO and his activist investor partner met with CSX officials in Atlanta on Friday just two weeks after reports that they were seeking a management shakeup at the railroad, the newspaper reported, citing people familiar with the matter.

Harrison presented his plans for the railroad, while investor Paul Hilal from the Mantle Ridge hedge fund sought three seats on the 12-member CSX board. The number of seats on the board may be a sticking point in negotiations, according to the newspaper.

Hilal was one of the architects of Pershing Square Capital Management’s successful proxy contest that led to the ouster of CP CEO Fred Green and a majority of railway’s board in 2012. Harrison came out of retirement to turn around CP, whose operating and financial performance was badly lagging the rest of the industry.

If Mantle Ridge can’t reach a friendly deal with CSX, the fund would have until Feb. 10 to nominate candidates for the railroad’s board of directors. That’s the deadline CSX’s corporate bylaws set for shareholders to bring resolutions to the annual meeting, which is typically held in early May.

Mantle Ridge has not publicly detailed its plans for CSX or the size of its investment in the railroad. Nonetheless, the CSX board is under pressure to respond to the Hilal and Harrison. When word of their management shakeup was first reported, CSX stock jumped 23 percent in a day and has since gone up a total of 27 percent, boosting the company’s value by more than $10 billion.

“CSX is committed to engaging with shareholders in constructive dialogue, hearing their input directly, and being open to sound, actionable ideas,” spokesman Gary Sease wrote in an email to Trains News Wire this morning. “The board will continue to represent the needs of all shareholders as it evaluates any ideas put forth as it pursues the long-term success of the company.”

In 2015, CSX CEO Michael Ward agreed to stay on for three more years after his apparent successor, Oscar Munoz, left the railroad for the top job at United Airlines.

Several Wall Street analysts have said it’s likely that CSX would be receptive to Harrison, who turned Illinois Central, Canadian National, and CP into ultra-efficient and highly profitable railroads.

Over the past three years, CSX has spurned at least two merger advances from a Harrison-led CP. But hiring Harrison would be a relatively simple matter that wouldn’t involve the burdensome risks and complications of a merger.

During CP’s failed attempts to merge with Norfolk Southern in late 2015 and early 2016, Harrison said he would wring $1.2 billion in savings and efficiency gains out of the NS system by idling a third of its locomotive fleet and running fewer and heavier trains on tighter schedules.

NEWSWIRETrains News Wire

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