Coverage: CSX hires a new CEO in deal with investor
Railroad operator CSX Corp. named Hunter Harrison as its new chief executive officer after striking an agreement with an activist investor.
Christine Wang of CNBC.com had the news:
The company said in a statement that Harrison is a “proven railroad executive with a well-regarded track record of producing market-leading operating results.” Harrison previously served as CEO of Canadian Pacific Railway.
CSX said it is seeking shareholder input on a proposal to pay Harrison $84 million of the compensation and benefits he forfeited in his separation with Canadian Pacific. In the mean time, CSX said activist “Mantle Ridge agreed to protect Mr. Harrison on an interim basis with respect to this $84 million.”
Harrison said he would resign after the 2017 annual meeting if CSX does not provide the reimbursement and tax indemnity requested.
Harrison said in a statement that he is “proud to join the dedicated and talented railroaders at CSX.”
“Together, we will implement Precision Scheduled Railroading — a model proven to improve safety, create better service for customers, produce a proud and winning culture for employees, and generate exceptional, lasting value for shareholders,” Harrison said.
CSX also said that it has also reached a deal with Mantle Ridge. Five new directors chosen in agreement between CSX and Mantle Ridge were appointed to the company’s board as part of the deal.
Josh Funk of the Associated Press reported that Harrison plans to make changes at CSX:
Harrison said he plans to implement the tightly scheduled operating model he used at CP and Canadian National railroads to reduce costs and boost profits.
Hilal, whose hedge fund owns 4.9 percent of CSX’s stock, praised the board for agreeing to the changes.
“The board is united behind a shared goal — creating value for shareholders and all stakeholders by implementing the precision scheduled railroading model at CSX,” said Hilal, who is slated to become CSX’s vice chairman.
But the changes won’t be assured to happen until after the railroad holds its annual meeting.
CSX said it plans to ask shareholders to vote on aspects of Harrison’s compensation package that would include reimbursing him for $84 million in compensation he forfeited at CP. Harrison says he will resign if the compensation isn’t approved.
Harrison will also get options on nine million CSX shares.
Frederick Tomesco and Scott Deveau of Bloomberg News report that CSX has been the industry’s worst performer:
The railroad was the worst performer last year among major North American railroads on an efficiency gauge known as operating ratio, according to data compiled by Bloomberg. The benchmark measure, in which a lower number is better, was more than 69 percent. Harrison should be able to reduce the number to 58 percent by 2020, Spracklin estimated.
Harrison developed the concept of so-called precision railroading while at Illinois Central, running shipments and carloads on fixed timetables to ensure reliable deliveries.
In his four years as CEO of Canadian Pacific, Harrison cut staff, stored locomotives and pushed the railroad to run longer and faster trains to reduce fuel and labor costs. He also closed several hump yards — used to separate and sort rail cars — and intermodal terminals in cities including Chicago and Milwaukee to trim operating costs and set the stage for potential land sales.
Canadian Pacific’s annual operating ratio plunged to less than 59 percent last year from 83 percent in 2012, the year Harrison joined the Calgary-based carrier. Net income more than tripled during the same period to about C$1.6 billion ($1.2 billion) last year from C$484 million in 2012.
While at Canadian Pacific, Harrison twice tried to acquire CSX — first in 2014 and again last year.