Departing Rail Chief Targets Rival CSX -- WSJ
January 19 2017 - 2:02AM
Dow Jones News
By David Benoit and Jacquie McNish
Hunter Harrison, the railroad veteran who announced his early
departure from Canadian Pacific Railway Ltd. Wednesday, is joining
with an activist investor in an attempt to shake up management at
rival railroad CSX Corp.
Mr. Harrison, 72 years old, said he is completing an agreement
to team up with Paul Hilal, who left William Ackman's Pershing
Square Capital Management LP to launch his own fund last year. They
are expected to try to put Mr. Harrison in a senior management
position at CSX, which CP approached about buying last year and in
2014, according to people familiar with the matter.
Mr. Hilal's fund, Mantle Ridge LP, has raised more than $1
billion for a single investment, according to a person familiar
with the matter. Investors have committed to locking up their money
in the fund for five years, the person said.
"We are close to a deal to potentially look at some
opportunities," Mr. Harrison said in an interview.
CSX shares rose 11% to $41.06 after hours. They closed down 3.2%
Wednesday after the company released fourth-quarter results
Tuesday.
Mr. Harrison, the former CEO of Canadian National Railway Co.,
took the helm at CP in 2012 after Pershing Square waged a
successful proxy fight to oust then-CEO Fred Green. Mr. Hilal
personally recruited Mr. Harrison, and the two worked closely on
CP's unsuccessful attempts to consolidate the industry, which has
been battered by falling commodity prices and coal traffic.
On Wednesday, Mr. Harrison announced he was retiring earlier
than expected from CP and would forfeit C$118 million ($89 million)
in compensation to pursue opportunities with other North American
railroads. His most recent contract was extended to the end of June
2017, when he was expected to hand over the reins to President
Keith Creel. Instead, he will leave at the end of this month.
An activist campaign at CSX could resemble Pershing Square's
fight for control of CP, Canada's second-biggest railroad by
revenue. The fund built a big stake in the Canadian railroad and
argued it needed better management, floating Mr. Harrison as its
CEO pick.
After a brutal proxy fight, Pershing Square won control of the
board, including seats for Messrs. Ackman and Hilal, and installed
Mr. Harrison as CEO. He went on to slash costs and improve the
company's margins.
Mr. Harrison began his career more than 50 years ago squirting
oil under railcars. The blunt, demanding executive has attracted a
loyal investor following for his detailed attention to cost-cutting
and improved traffic times.
During his tenure at CP, Mr. Harrison had special screens placed
in his various homes in the U.S. so he could monitor train arrivals
and departures. On some occasions when trains were behind schedule,
Mr. Harrison called local engineers for an explanation.
Under Mr. Harrison, CP approached both CSX and Norfolk Southern
Corp. about combining, touting its operational improvements. Mr.
Hilal was instrumental in delivering that message, people familiar
with the matter have said.
Since Mr. Harrison joined CP, the railroad's operating ratio, a
measure of operating costs as a percentage of revenue, fell to
58.6% in its most recent fiscal year from 81.3% at the end of
2011.
CSX's operating ratio in 2016 was 69.4%, and it has said it is
targeting a ratio in the mid-60s longer-term.
CSX was founded in 1827 and has nearly 29,000 employees. The
Jacksonville, Fla., company serves nearly two-thirds of the
American population through a network that reaches 23 states and
two Canadian provinces, according to its website.
Mr. Ackman resigned from CP's board in September, and Pershing
Square has sold its stake. Neither Pershing Square nor Mr. Ackman
have invested with Mr. Hilal's fund, according to people familiar
with the matter.
--David George-Cosh contributed to this article.
Write to David Benoit at david.benoit@wsj.com and Jacquie McNish
at Jacquie.McNish@wsj.com
(END) Dow Jones Newswires
January 19, 2017 02:47 ET (07:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
CSX (NASDAQ:CSX)
Historical Stock Chart
From Apr 2024 to May 2024
CSX (NASDAQ:CSX)
Historical Stock Chart
From May 2023 to May 2024