Posts Tagged ‘Canadian Pacific’

CSX Shareholders Favor Giving Harrison More $$$

June 6, 2017

As expected, most CSX shareholders have voted to give CEO E. Hunter Harrison the money that he wants.

E. Hunter Harrison

In an advisory vote, 93 percent of the shareholders favored giving Harrison and hedge fund Mantle Ridge $84 million to reimburse them for salary and benefits that Harrison forfeited by leaving early as the CEO of Canadian Pacific last January.

The vote was made public on Monday at the CSX annual meeting in Richmond, Virginia.

Harrison had threatened to resign if shareholders rejected the reimbursement request.

Many analysts had expected the shareholders to agree to giving Harrison the money because CSX stock has risen by 40 percent in value since it became known that Harrison was seeking to become the railroad’s head.

Harrison took over the CEO post last March. Paying Harrison and Mantle Ridge will cost about 12 cents per share.

CSX also said that 13 candidates for its board of directors have been elected, with each member receiving the backing of at least 96 percent of shareholders.

They include Harrison, Mantle Ridge founder Paul Hilal, Donna M. Alvarado, Sen. John B. Breaux, Pamela L. Carter, Steven T. Halverson, Edward J. Kelly III, John D. McPherson, David M. Moffett, Dennis H. Reilley, Linda H. Riefler, J. Steven Whisler, and John J. Zillmer.

CSX, CP May Launch Run-Through Trains

May 29, 2017

CSX and Canadian Pacific are reportedly discussing ways to eliminate traffic congestion in Chicago, including creating run-through trains.

 “We’ve had some discussions with CSX operationally as well as commercially,” CP CEO Keith Creel said last week at an investor conference.
Noting that the talks are in the early stages, Creel said that the goal is to reduce transit time and improve service reliability.

CP currently relies on Norfolk Southern to move CP trains between Chicago and Detroit because CP does not have its own route from the east.

Stack trains cannot use the Windsor Tunnel beneath the Detroit River and CP has used CSX in recent years to move double stacked container between Chicago and Buffalo.

This puts CP at  competitive disadvantage against its chief rival Canadian National, which reaches Chicago over the former Grand Trunk Western and when can get through Chicago on the Elgin, Joliet & Eastern, which CN acquired in 2009.

CSX and CP interchange about 400 cars per day in Chicago, making CSX CP’s largest interchange partner railroad there.

Creel told the investor conference that 100 of those cars could be sent deep into CSX territory as a run-through train to avoid handling in Chicago. CSX could build trains destined for points on CP.

Harrison Has Medical Condition That Often Has Him Working From Home, Not CSX Headquarters

May 19, 2017

The Wall Street Journal reported this week that CSX CEO E. Hunter Harrison has a medical condition that often forces him to work at home.

E. Hunter Harrison

The newspaper gave few specific details about the condition and the 72-year-old executive said that he should not be judged by his medical record.

“I’m having a ball and I’m running on so much adrenaline that no one can stop me,” Harrison told the Journal. “Don’t judge me by my medical record, judge me by my performance.”

Harrison acknowledged that he carries a portable oxygen system, but his doctors cleared him for his position.

“There are times when I get a little shortness of breath so I take oxygen and it helps,”
Harrison said.” Sometimes I get a cough and the oxygen makes it go away.”

CSX Chief Financial Officer Frank Lonegro told an investor conference that Harrison is fully engaged in his job.

“We’re really running to play catch up with him,” Lonegro says. “He’s a 24-hour-a-day, seven-day-a-week kind of guy.”

Trains reported that CSX was well aware of Harrison’s medical condition when it hired him.

However, that was a point of contention at one point when CSX demanded that independent physicians review Harrison’s medical records, a request that Harrison refused.

CSX said it would not comment on Harrison’s health.

The Journal said that during his last two years at Canadian Pacific, Harrison frequently worked from home rather than in his CP office in Calgary.

Mantle Ridge Pushes CSX Stockholders to Vote ‘Yes’ On Additional Harrison Compensation

April 26, 2017

The campaigning has begun to win the votes of CSX shareholders as to whether new CEO E. Hunter Harrison should be reimbursed for the money he gave up when he retired early from Canadian Pacific.

Not surprisingly, the hedge fund Mantle Ridge is supporting giving Harrison the money. Mantle Ridge lured Harrison away from CP by promising to pay him what he would give up by leaving early. Now Mantle Ridge wants to be reimbursed for what it paid Harrison.

Mantle Ridge has launched a website, www.csxadvisoryvote2017.com to make its case.

“We believe that Mr. Harrison is the most effective and successful railroad leader of our times, having led the dramatic turnaround of three major railroads over the last 25 years,” Mantle Ridge founder and CEO Paul Hilal wrote in a letter to shareholders. “In those undertakings, he drove operating ratios to industry-leading levels while delivering total shareholder returns of 450 percent, 353 percent, and 319 percent, respectively.”

CSX stockholders will vote at the annual meeting on June 5 in a non-binding referendum on the reimbursement. Harrison has said he will resign if he doesn’t get the additional compensation.

The referendum seeks approval for CSX to pay Mantle Ridge $55 million and Harrison $29 million, which would pay his tax bill.

Hilal said the cost of the reimbursement amounts to less than 12 cents per share.

Papers filed with regulatory authorities last week indicate that Harrison gave up $89 million in salary and benefits to win release from his CP contract.

Many analysts expect the referendum to win approval because of the value that hiring Harrison has added to CSX stock.

The shares jumped in value by $12.91, an increase of 35 percent, after CP said it would allow Harrison to retire early.

The value of CSX stock rose against last week after the company announced its first quarter 2017 financial performance.

The CSX board of directors has not taken a position on the Harrison compensation referendum, but before hiring him the board had expressed concern about the size of the compensation package that he wanted.

The board did approve a statement to stockholders outlining the pros and cons of voting in favor of the compensation.

After acknowledging Harrison’s track record at Illinois Central, Canadian National and CP, the advisory noted that other side of the argument is that there is a risk that Harrison won’t be able to serve the full four years of his contract due to the potential for death, disability or other reasons.

It also said that Harrison may not be able to achieve results similar to those at IC, CN, and CP.

The board said it would take the referendum into account and “ . . . act promptly in the exercise of its fiduciary duties with respect to whether to commit to the reimbursement after the shareholders have voted.”

Harrison’s Compensation at CSX Outlined

March 9, 2017

Hunter Harrison and CSX agreed to a base salary of $2.2 million, the railroad said this week in a regulatory filing.

The compensation package also includes an annual target bonus opportunity of up to $2.8 million, with that amount as a guaranteed bonus this year.

Harrison will receive options on 9 million shares of CSX stock, which is valued at $448 million at its current price of $49.79 per share.

Half of those options will hinge on his continued employment and the other half are tied to his meeting a series of performance targets.

The agreement to hire Harrison as its CEO also came with a number of changes in the CSX board of directors.

Clarence Gooden is no longer vice chairman and board member Timothy O’Toole has resigned immediately.

CSX’ has amended its corporate bylaws to separate the roles of CEO and chairman of the board as well as to change the mandatory retirement age of 75. Harrison is 72.

Although it remains to be seen how Harrison’s management philosophy will play out at CSX, analysts expect that he will further thin the number of managers and employees at the company, close yards and shops, and sell off some rail routes.

These measures will be aimed at improving operations, reducing expenses and boosting profitability.

Some have noted that CSX is far different than were Canadian National and Canadian Pacific when he took over as CEO at those railroads.

The Canadian roads were linear systems whereas CSX has a more complex route network.

That will challenge Harrison to impose his precision scheduled railroading philosophy, which he developed as CEO of the Illinois Central Railroad in the 1990s.

One decision Harrison will need to make will be whether to continue the CSX of Tomorrow strategy, which emphasized intermodal and merchandise traffic while focusing on its major routes operating in a triangle operating from Chicago to New Jersey to Florida and then back to Chicago.

CSX, Harrison Reported Close to a Deal

March 4, 2017

News reports on Friday indicated the CSX and E. Hunter Harrison are closed to reaching a deal for the former Canadian Pacific head to become CEO of CSX.

CSX logo 1Bloomberg News reported that an announcement could be made as early as next week although the talks between CSX and hedge fund Mantle Ridge over the composition of the CSX board of directors could still collapse.

The reports indicated the two sides were close to reaching an agreement whereby Harrison would begin work immediately for CSX and receive a four-year contract.

CSX shareholders would vote on whether to reimburse Mantle Ridge the $84 million that it paid Harrison to walk away early from CP.

Back in January, several news reports indicated that Harrison agreed to forego tens of millions of dollars to get CP to grant him a limited waiver of a non-compete clause.

CSX and Mantle Ridge have refused to comment on the report.

Pair of Canadians in Berea

March 3, 2017

berea-1

berea-2

Motive power from Canadian National and Canadian Pacific is not rare in Berea, but it is not a given, either.

CP has a pair of run-through trains that use CSX between Chicago and Buffalo, New York, and it is not unusual to see them in Berea during daylight hours.

Given how the North American Class I railroads share motive power, seeing a CN unit is not an unusual thing on either CSX or Norfolk Southern.

But what was a out of the ordinary during a recent railfanning outing in Berea was seeing two westbound NS trains with Canadian motive power on the lead as shown above.

Photographs by Craig Sanders

How Soon We Forget What Might Have Been

March 2, 2017

berea-october-9-x

It was about this time a year ago that E. Hunter Harrison and Canadian Pacific were making a play to acquire Norfolk Southern.

Harrison came at NS hard, but came up short. The NS board of directors opposed the merger and Harrison ran into a buzz saw of opposition from shippers, labor unions and political figures.

The time was not ripe to institute what some see coming as the final round of Class 1 mergers in North America.

Since failing to acquire NS, Harrison has retired (again) and the financier Bill Ackman of Pershing Square Capital has also left the CP board.

Now Harrison has teamed up with hedge fund Mantle Ridge to try to shakeup CSX management and install Harrison  as CEO.

While railfanning in Berea back in November I photographed a CP unit trailing on a westbound NS train as a reminder of what might have been had Harrison prevailed.

Article and Photograph by Craig Sanders

Numbers, Numbers. How Much is Hunter Worth?

February 20, 2017

When E. Hunter Harrison retired early from Canadian Pacific, news accounts noted that he left millions of dollars on the table in exchange for a limited waiver of a non-compete clause so he could pursue the CSX CEO job.

As it turned out, Harrison did no such thing.

On TransportationThe hedge fund Mantle Ridge agreed to pay Harrison the money he gave up at CP.

Mantle Ridge in turn wants CSX to reimburse it for the cash it guaranteed Harrison for walking away early from CP.

CSX claims that Harrison is seeking a four-year contract worth $300 million. That $75 million a year would make him not just the highest paid North American Class 1 railroad executive but also place him among the highest-paid CEOs in America.

By comparison, the man Harrison wants to replace, Michael Ward, earned $2.9 million in 2015. Another retired Class 1 CEO, Charles “Wick” Moorman, who agreed to take Amtrak’s top job for $1 a year, although he is also eligible for performance-based bonuses of up to $500,000 a year.

But Mantle Ridge counters that Harrison’s compensation package would actually be worth $200 million of which $120 million are stock options.

Such is life in the rare air of the corporate suite where eye-popping salaries are justified by saying a CEO brings a “unique skill set” to the job.

Executive compensation experts interviewed by Trains magazine said Harrison’s pay demands are at the high end of the scale, but not unreasonable by CEO pay standards.

Once the news broke that Harrison was seeking the top CSX job, the value of CSX stock jumped $10.4 billion, an increase of 30 percent.

Ben Branch, a finance professor at the Isenberg School of Management at the University of Massachusetts, told Trains that CSX stockholders might think Harrison has a “dramatic plan” for improving the company.

“It’s rare,” Branch said. “You don’t have many situations where a CEO almost single-handedly is expected to deliver dramatic improvement.”

Jason Shiel, a managing director of finance firm Cowen and Company, told Railway Age the pay demanded by Harrison is a negotiating point and he is likely to receive less, although not necessarily much less.

Harrison is known for his scheduled precision railroading operating philosophy, which some railroad industry analysts say is similar to what CSX practices now.

Ultimately, some think Harrison’s long game is to engineer a merger that creates North America’s first transcontinental railroad. It is an idea he been peddling for years and failed to pull off last year when he proposed a merger between CP and Norfolk Southern.

For us mere mortals whose primary connection with CSX is watching its trains pass by, all of this talk about eight- and nine-figure executive compensation is nothing more than a parlor game.

The numbers baffle ordinary people who have no chance in their lifetime of ever earning a salary exceeding five figures a year. Most of us can’t fathom how you become a CEO of a Fortune 500 company.

For most CSX employees, having Harrison rather than Ward at the top will make little difference.

They will continue doing what they have been doing even if there may be some changes in how they do it.

Yet it is likely that some may find themselves victims of Harrison’s expected cost cutting.

In the eyes of Harrison and other high-ranking and well-paid railroad executives, labor costs are just another number to be reduced in order to please Wall Street.

How those reductions affect individual CSX employees financially and emotionally won’t be a subject of discussion at the special CSX board meeting. It never is.

All they talk about are numbers and for most of us that is all Harrison’s pay demands are.

Mantle Ridge Disputes CSX News Release

February 18, 2017

Hedge fund Mantle Ridge took issue with some facts contained in a CSX news release issued earlier this week on the subject of E. Hunter Harrison becoming the railroad’s CEO.

CSX logo 3Mantle Ridge head Paul Hilal said he wrote to the CSX Board of Directors to take issue with the news release, in particular the size of the compensation package for Harrison and Hilal’s demands for governance changes for the CSX board.

“We owe it to the shareholders to get a deal done promptly. Let’s do it,” Hilal wrote. “If you are willing, we are glad to meet in person and hammer this out this weekend, hopefully delivering good news to the shareholders early next week.”

In the meantime, Harrison told the Wall Street Journal that he was frustrated with what he described as “chest pounding” between his investment partner and CSX, which has resulted in a stalemate in the negotiations for him take over as CSX as its CEO.

The newspaper reported that CSX had offered the CEO post to Harrison, but that Hilal, a principle at Mantle Ridge, has refused to give in on compensation and governance demands. Hilal, who is representing Harrison, has conducted most of the discussions with CSX.

Mantle Ridge holds less than 5 percent of CSX stock but wants to name six directors to the railroad’s board of directors and reduce the number of directors to 12,

In the news release, CSX said it is reluctant to allow a shareholder with such a small share of its stock to dictate the composition of its board. CSX also has described the demands to give Harrison a $300 million compensation package as “extraordinary in scope.”

The Journal said that during a recent meeting with Mantle Ridge, some CSX shareholders objected to the number of seats on the board that Mantle Ridge wants.

Hilal reportedly said during the meeting he needs to control six seats so that Harrison “has control and can execute his plan.”

CSX reportedly is objecting to paying Harrison the $89 million he gave up by leaving early as Canadian Pacific’s CEO in return for receiving a limited waiver of a non-complete clause.

Hilal contends that the compensation deal that Mantle Ridge is seeking from CSX is $200 million and includes $120 million of stock options, about half of which are tied to “very real” performance measures.

Another sticking point is the 72-year-old Harrison’s refusal to agree to have a physical exam by an independent physician.

Harrison told the Journal he was willing to negotiate his pay with the CSX board,

In his letter, Hilal contended that Harrison wants $32 million per year over four years – or $128 million – of which $20 million per year is performance-based.

“His package is worth very little unless he performs spectacularly,” Hilal wrote. As for the changes on the CSX board, Hilal said he is only seeking a seat for himself.

Harrison would occupy another seat along with four other independent directors who would be agreed upon by CSX and Mantle Ridge

“Why are we asking that new directors be added? As we’ve discussed, precision scheduled railroading requires dramatic operational and cultural change,” Hilal wrote. “Change like that starts at the top, with significant new blood on the board not wed to the old ways or legacy decisions and with no ties to any previous strategy or anyone.”