Hunter Harrison named CEO at CSX Transportation

Highly regarded executive replaces Michael Ward immediately
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E. Hunter Harrison
Associated Press

JACKSONVILLE, Fla. — E. Hunter Harrison was named the CEO of CSX Transportation today, less than seven weeks after stepping down early from the top job at Canadian Pacific.

Harrison, 72 — widely regarded as the industry’s best operations CEO — will begin immediately, CSX said today. He transformed Illinois Central, Canadian National, and CP into ultra-efficient and highly profitable railroads over the past three decades.

"I am proud to join the dedicated and talented railroaders at CSX,” Harrison says. “Together, we will implement precision scheduled railroading — a model proven to improve safety, create better service for customers, produce a proud and winning culture for employees, and generate exceptional, lasting value for shareholders.”

The deal with CSX was a coup for Harrison and his activist investor partner, Mantle Ridge founder Paul Hilal. Harrison on Jan. 18 announced his departure as CP CEO — five months earlier than planned — so he and Hilal could pursue a management shakeup at CSX.

Hilal and Harrison will gain seats on the CSX board, with Hilal becoming its vice chairman. In addition, CSX appointed three other directors as part of a deal with Mantle Ridge, which owns just under 5 percent of CSX’s stock.

CSX said that at the annual shareholder meeting, typically held in May, investors will vote on two elements of Harrison’s compensation package. These include reimbursing Mantle Ridge for the $84 million in compensation and benefits Harrison left on the table at CP by retiring early, as well as tax liabilities that could reach $23 million.

Under the deal with Mantle Ridge, Harrison can resign after the shareholder meeting if shareholders reject these items. CSX scrapped plans for a special shareholder meeting to consider Mantle Ridge’s proposals.

“I thank every CSX director, including those leaving the board, for their constructive and skillful engagement that enabled this terrific outcome for CSX,” Hilal says. “The board is united behind a shared goal – creating value for shareholders and all stakeholders by implementing the precision scheduled railroading model at CSX. Together, we have created the conditions for success. Now the real work begins.”

Hilal helped lead Pershing Square’s successful 2012 proxy battle that ousted CP management and installed Harrison as CEO. Harrison quickly implemented his precision railroading system at CP, slashing costs and raising revenue. CP’s operating ratio fell more than 20 points in less than three years. And its stock price doubled during Harrison’s tenure.

Word that Harrison was eyeing CSX sent the company’s stock soaring 30 percent, boosting its overall value by $10.4 billion. This put pressure on CSX’s board to respond.

By reaching a friendly deal with Harrison and Mantle Ridge, CSX avoids a costly and potentially nasty proxy battle. A decade ago, CSX fought — and lost — a proxy contest launched by The Children’s Investment Fund and 3G Capital Partners. The railroad spent $22 million in the effort, but four of the activist investor’s five candidates were elected to its board.

Harrison replaces Michael Ward, who has led CSX since 2003. CSX on Feb. 21 announced Ward would retire, effective May 31. Ward will now stay on as a consultant, although CSX did not say for how long.

Three CSX board members will retire at or before the conclusion of the annual shareholders meeting, CSX said. The board’s current presiding director, Edward Kelly III, will become chairman of the 13-member board.

The new directors include Dennis Reilley, the retired CEO of Praxair; Linda Riefler, a 25-year veteran of investment bank Morgan Stanley; and John Zillmer, the former CEO of Univar.

UPDATE: Confirmation on Hunter Harrison's election as CSX CEO. Details on new board members. March 6, 2017, 10:06 p.m. Central time.

NEWSWIRETrains News Wire

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