CSX Agrees to Hire Hunter Harrison as CEO -- Update
March 06 2017 - 2:21PM
Dow Jones News
By Jacquie McNish and David Benoit
CSX Corp. has agreed to appoint Hunter Harrison as its next
chief executive, people familiar with the matter said, giving the
railroad veteran a four-year contract to slash costs and revamp one
of the country's biggest railways.
His appointment ends an unusual contest with an activist
investor who quickly parlayed Mr. Harrison's popularity with
investors into sweeping leadership changes at the railway. Mr.
Harrison is expected to take the helm as early as this week, the
people said.
Mr. Harrison's activist partner Paul Hilal, founder of Mantle
Ridge LP, won CSX approval to nominate five new directors,
including Messrs. Hilal and Harrison, to its current board of 12
directors, the people said. The board is expected to shrink in
coming years with retirements, including current Chairman and CEO
Michael Ward.
Edward Kelly, an independent CSX director who helped negotiate
Mr. Harrison's move to the Jacksonville, Fla., railway, will
replace Mr. Ward as chairman, the people said. Mr. Hilal is set to
be named vice chairman.
Mantle Ridge owns a 4.9% stake in CSX, but it wielded
extraordinary leverage after news of Mr. Harrison's CSX ambitions
drove the railroad's stock up by more than 30%. Among the investors
who pushed for the railroad to hire Mr. Harrison were mutual-fund
giant Fidelity Investments and some managers at Neuberger Berman,
people familiar with the matter said.
Mr. Harrison plans to improve profits at CSX by cutting jobs and
closing several rail yards, according to people familiar with his
plans. As part of this strategy, Mr. Harrison aims to shift some of
CSX's operations away from Rust Belt states such as Michigan and
Pennsylvania to more economically vibrant Southern states.
CSX's offer to Mr. Harrison, 72 years old, includes the award of
substantial stock options if he fulfills his promise to boost the
railway's profits, the people familiar with the matter said.
Details of the compensation package couldn't be learned. The
railroad had previously objected to the size of the compensation
package requested by Messrs. Hilal and Harrison.
Mr. Harrison resigned as CEO of Canadian Pacific Railway Ltd. in
January to join Mantle Ridge's bid to shake up CSX's
management.
CSX's board didn't approve Mantle Ridge's demand for more than
$80 million to cover its cost of compensating Mr. Harrison for
benefits surrendered when he resigned as CEO of CP. Instead, the
board plans to ask shareholders to vote on the payment at the
company's next annual meeting, according to people familiar with
the matter. Mr. Harrison is entitled to resign from CSX if the
shareholders reject the payment, the people said.
Mr. Harrison's new job marks his fourth and potentially most
challenging turnaround assignment in a career that began more than
50 years ago, when he was hired by a Memphis railway to lubricate
railcar axles. He subsequently won a strong reputation among
investors after turning around Illinois Central Railway, Canadian
National Railway Co. and CP with his so-called precision railway
strategy of slashing labor costs and setting tight controls on
train schedules.
CSX will be a thornier challenge because its rail network in the
eastern U.S. is significantly larger and more dependent on
struggling freight customers such as coal producers.
Another concern is Mr. Harrison's age and health, following a
serious bout of pneumonia and other health issues in 2015. The
executive's doctors have recently cleared him to continue working,
according to one person close to Mr. Harrison.
Even as CSX's board negotiated with Mantle Ridge, the rail
operator began making changes to slim down and shift to a more
efficient rail network. The company said last month it would lay
off up to 1,000 management employees, saving at least $175 million
in annual costs.
Last week, CSX said several longtime executives in its operating
division would retire and it would reorganize the network around
fewer corridors in an effort to eliminate costly and time-consuming
crew changes, according to an internal memo reviewed by The Wall
Street Journal.
Paul Ziobro contributed to this article.
Write to Jacquie McNish at Jacquie.McNish@wsj.com and David
Benoit at david.benoit@wsj.com
(END) Dow Jones Newswires
March 06, 2017 15:06 ET (20:06 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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