Hedge fund urges CSX investors to back Harrison reimbursement package

Mantle Ridge website explains rationale for $84 million request
RELATED TOPICS: CSX | EHH | PEOPLE | FINANCIALS
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NEW YORK — Activist investor Mantle Ridge, the hedge fund that pulled off the management coup at CSX Transportation, has launched a website encouraging the railroad’s shareholders to support reimbursement arrangements for $84 million in salary and benefits that CEO E. Hunter Harrison forfeited by stepping down early from the top job at Canadian Pacific.

The site, csxadvisoryvote2017.com, urges investors to vote “yes” of the non-binding resolution, which will be considered at CSX’s annual meeting of shareholders on June 5. Harrison has said he will resign if the measure does not pass.

Failure to retain Harrison “will be detrimental to the near and long-term value of CSX,” Mantle Ridge says.

Mantle Ridge is seeking $55 million, while Harrison is seeking $29 million and asking CSX to pick up the tab for his related tax bill, according to the final proxy statement filed last week. Harrison had to forfeit $89 million in salary and benefits in order to be released from his contract at CP.

Harrison announced his departure from CP on Jan. 18, some five months early, so that he and Mantle Ridge could pursue a management shakeup at another Class I railroad. CSX named Harrison its chief executive on March 6.

Wall Street analysts expect that shareholders will approve the resolution, citing the more than $10-billion spike in the railroad’s value on the stock market.

Mantle Ridge founder and CEO Paul Hilal noted that the cost of the reimbursement amounts to less than 12 cents per share.

“To put that reimbursement cost in context of the value shareholders expect Mr. Harrison to create for them, CSX’s stock increased $12.91 per share, or 35 percent, from the day Canadian Pacific announced Mr. Harrison would retire with a limited waiver of his non-compete allowing him to serve as CEO of certain class one railroads including CSX until the date CSX hired him as CEO,” Hilal wrote.

CSX stock surged again last week after the railroad’s first-quarter earnings call, when management said earnings per share would rise by 25 percent this year.

CSX did not take a position on how shareholders should vote on the reimbursement request.

But in a letter to shareholders, Hilal went to bat for Harrison and his Precision Scheduled Railroading operating model.

“We believe that Mr. Harrison is the most effective and successful railroad leader of our times, having led the dramatic turnaround of three major railroads over the last 25 years (Illinois Central, Canadian National, and Canadian Pacific),” Hilal wrote. “In those undertakings, he drove operating ratios to industry-leading levels while delivering total shareholder returns of 450 percent, 353 percent, and 319 percent, respectively.”

In its proxy statement, the CSX board did say that shareholders should consider certain pros and cons of the reimbursement arrangement.

On the pro side, CSX noted that investors should consider Harrison’s track record at IC, CN, and CP. His experience implementing Precision Scheduled Railroading; and the fact that he would resign if shareholders don’t agree to the reimbursement.

On the con side, CSX advised shareholders to consider the cost of the reimbursement and Harrison’s compensation package; the risk that Harrison can’t serve as CEO for the full four years of his contract due to the potential for death, disability, or other reasons; and the risk that Harrison may not be able to achieve results similar to those at IC, CN, and CP.

“The resolution is advisory, and the board intends to act promptly in the exercise of its fiduciary duties with respect to whether to commit to the reimbursement after the shareholders have voted,” CSX says in its draft proxy statement.

The CSX annual meeting of shareholders will be held at 10 a.m. on June 5 at The Jefferson Hotel in Richmond, Va.

NEWSWIRETrains News Wire

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