CSX shareholders are seen likely to bring in Harrison as CEO
CSX SHAREHOLDERS are likely to approve Hunter Harrison’s demand for a pay package valued at US$ 300 million ( RM1.4 billion) to turn around the railroad, according to analysts.
Investors will be asked to vote on an employment deal and board representation sought by Harrison, a 72-year- old railroad veteran seeking to become chief executive officer, and activist investor Paul Hilal, the company said in a statement. CSX’s directors welcomed Harrison’s bid to become CEO but balked at the board and compensation demands.
“Odds remain in favour of a change that would usher in the leadership of Hunter Harrison,” Fadi Chamoun, a BMO Capital Markets analyst, said Wednesday in a note to clients.
“It seems to us that shareholders have already voted for this change and stand to see significant downside in the absence of a deal.”
Harrison and Hilal targeted CSX, the least- efficient North American railroad, for a shakeup last month, taking a page out of the playbook they used with hedge-fund billionaire Bill Ackman to turn around Canadian Pacific Railway.
Harrison stepped down as CEO of the Canadian carrier ahead of schedule last month, forfeiting more than US$ 80 million in compensation and revising a non- compete agreement so he could run CSX.
CSX’s board “believes that the governance requests would grant effective control of CSX to a less than five per cent shareholder,” the Jacksonville, Florida-based company said Tuesday evening.
As for Harrison’s compensation proposal, it said, the “extra- ordinary” request would be “exceptionally unusual, if not unprecedented” for an incoming CEO. Hilal said he is “fully confident’’ in a favourable outcome for the company. Optimism that Harrison will become CEO has fuelled an increase of about US$ 10 billion in the railroad’s market value, Hilal said.
“While we had hoped to reach a negotiated agreement, we appreciate that CSX shareholders will have the opportunity to make their voices heard on the optimal governance and compensation structure that will create the conditions for a successful transformation,’’ Hilal said by email.
Harrison couldn’t be reached for comment.
Harrison may be installed by the end of April, said Citigroup analyst Christian Wetherbee. CSX shareholders will likely view Harrison’s compensation “as worth the potential for a 58 per cent operating ratio,” Wetherbee said.
The shares fell 1.5 per cent to US$ 47.26 at 9.58am in New York. CSX had gained 34 per cent this year through last Tuesday.
Hilal’s fund, Mantle Ridge, covered the Canadian Pacific pay that Harrison abandoned and now wants CSX to pick up the tab, the US railroad said. Under the Mantle Ridge proposal, Harrison would receive other compensation including an “immediate equity award” covering one per cent of CSX’s stock.
The company said it’s willing to offer a package that “that fully reflects Mr Harrison’s experience and accomplishments,” without specifying amounts.
The special meeting, the date of which hasn’t been announced, is for investors who own shares as of Mar 16. CSX’s annual shareholders meeting would be held afterward. While the company questioned the pay package and governance proposals of Harrison and Mantle Ridge in its statement, it said the board wouldn’t recommend for or against them.
Negotiations included a meeting between the full CSX board and Harrison and Mantle Ridge that lasted more than five hours, CSX said. In an email dated Feb 6, lead director Edward Kelly said, “We would be pleased to appoint you as Chief Executive Officer of CSX.”
Both sides agreed that Mike Ward would step down as CEO and chairman of the board. CSX said it was willing to add five new directors, including Hilal and Harrison, expanding the board seats to 16. Four board members would subsequently step down. Mantle Ridge is seeking to name six directors to a board that would be increased to 14 seats, CSX said. Hilal would succeed Kelly as chairman after a year and the plan calls for additional retirements of other incumbent directors.
Goldman Sachs and UBS Group are serving as financial advisers to CSX. Davis Polk & Wardwell and Hunton & Williams are legal advisers.
CSX would be Harrison’s fourth railroad to run in a career he started as an 18-yearold employee lubricating train wheels.
Earlier in his career, he was CEO of Canadian National Railway Co., now the leanest North American railroad, and Illinois Central. — WPBloomberg