On Track

On June 5, 2017, CSX shareholders overwhelmingly approved an $84M reimbursement to Mantle Ridge (“MR”). MR was the activist investor who foisted the new CEO, Hunter Harrison, upon the CSX Board. With only 4.9% of the outstanding common shares, MR was able to engineer a virtual takeover of the company, largely with the help of over $1B in stock appreciation since the announcement of Mr. Harrison’s arrival was in the offing.

Not only was 4.9% enough to install Mr. Harrison, but it got MR 4 board seats which was enough to persuade CSX’s board to confirm an unusually large executive package. This package included a reimbursement of $84M which represented the amount Mr. Harrison gave up by “retiring” early from Canadian Pacific, his previous employer, but which MR had fronted pending the takeover.

The CSX Board approved the shareholder vote on June 16, formalized by its 8K filing with the SEC, which concluded with this ominous disclosure:  “The pace of implementing Mr. Harrison’s business strategies . . . depends on numerous factors, including his continued availability and service.  Continued availability and service can never be guaranteed for any individual and is a particular risk in the case of Mr. Harrison, who is 72 years old and has experienced medical issues at various times, including a respiratory condition that requires him to use supplemental oxygen.”

Since Mr. Harrison’s arrival, about 1,000 jobs have been eliminated, with yet another possible 1,000 jobs on the near term chopping block. He has closed numerous yards, and consolidated a number of facilities. On time train performance has skyrocketed, but unlike most other major railroads whose volumes are up significantly this year, CSX is flat. In the meantime, CSX’s stock has flattened out after its meteoric rise which occurred during the period of Mr. Harrison’s rumored arrival.  Both the industry, the board, and other shareholders will be watching closely!

DISCLAIMER: The opinions expressed in this article are the author’s own and do not reflect the views of Consolidated Rail Corporation, CSX, or Norfolk Southern

Jonathan Broder is Vice President and Chief Legal Officer of Conrail.

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