CSX Seen Restarting CEO Talks After Activist Softens His Demands
CSX Corp. is expected to restart talks to install Hunter Harrison as CEO after an activist investor allied with the railroad turnaround veteran softened his demand for board representation, a Citigroup Inc. analyst said.
Paul Hilal said his Mantle Ridge fund would accept five new director appointments instead of six: himself, Harrison and three other independent members. Hilal, in a letter late Feb. 16 to lead CSX director Edward Kelly, encouraged the railroad to meet with him and work out a deal by early in the week ending Feb. 25.
“Given these concessions and broad support for Harrison and Mantle Ridge amongst shareholders, we believe it’s reasonable for CSX’s board to re-engage to reach a negotiated solution,” Citigroup analyst Christian Wetherbee said in a note Feb 17.
RELATED: CSX is said to hit obstacle in CEO negotiations with Harrison
A return to the negotiating table would advance Harrison and Hilal toward their goal of taking over management of Jacksonville, Florida-based CSX, the least efficient major North American railroad. The board said Feb. 14 that it planned to call a special meeting for shareholders to vote on Hilal’s proposals, saying the two sides were at an impasse. The date for the meeting wasn’t set, and the board said it wouldn’t make a recommendation on how to vote.
In his letter, Hilal disputed a CSX statement earlier in the week ending Feb. 18, in which the railroad said Harrison was seeking a pay package of $300 million, calling it a “major mischaracterization” that has confused shareholders. That shows a willingness to negotiate on Harrison’s compensation, Wetherbee said.
CSX said in a statement late Feb. 16 that it would “carefully review the letter” from Hilal.
The prospect of Harrison taking over at CSX fueled a 29% rally from Jan. 18, the day before the company said it would evaluate Mantle Ridge’s views, through Feb. 16. The shares climbed 1.2% to $48.28 at 10:47 a.m. Feb. 17 in New York.
After Harrison, 72, became CEO of Canadian Pacific Railway Ltd. in 2012, the railroad’s annual operating ratio — a measure of efficiency in which a lower number is better — plummeted to less than 59% last year from 83% in 2012. Over the period, net income more than tripled to about C$1.6 billion ($1.2 billion) in 2016 from C$484 million in 2012.
Harrison also ran Canadian National Railway Co., the most efficient North American railroad, and Illinois Central.
