Posts Tagged ‘Paul Hilal’

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.”

CSX Said to be Talking With Harrison

January 31, 2017

The Wall Street Journal reported on Monday that CSX and E. Hunter Harrison are in negotiations about the railroad’s CEO position.

CSX logo 3Harrison has presented to CSX management his plans to revamp CSX. The former CEO of Canadian Pacific, Canadian National and Illinois Central, is teaming up with Paul Hilal of the Mantle Ridge hedge fund to seek a management shakeup at CSX.

Mantle Ridge was reported to be seeking three seats on the 12-seat CSX board of directors, a demand that may be a source of conflict the Journal reported.

News reports indicate that Harrison met with CSX officials last Friday in Atlanta.

If CSX, Harrison and Mantle Ridge are unable to reach an agreement, then the hedge fund has until Feb. 10 to nominate candidates to the CSX board. CSX usually holds its annual meeting in May.

It is not clear what plans that Harrison and Mantle Ridge have for revamping operations at
CSX.

In the past year, CSX management under current CEO Michael Ward has retooled rail operations. Among other steps, CSX has emphasized longer trains and focusing capital expenditures on core routes.

In 2015, Ward said he planned to remain the CSX CEO for three more years after Oscar Munoz, who was expected to replace Ward, left to head United Airlines.

While at CP last year, Harrison unsuccessfully sought a merger with Norfolk Southern.

Some analysts on Wall Street believe CSX will be receptive to having Harrison as CEO because of his experience in leading other class 1 railroads.

Harrison Eyes Taking Over CSX as CEO

January 19, 2017

E. Hunter Harrison is back in the takeover game and setting his sights on wresting away control of CSX from current CEO Michael Ward.

E. Hunter Harrison

E. Hunter Harrison

The Wall Street Journal reported this week that Harrison, who fought an unsuccessful bid in early 2016 to acquire Norfolk Southern, has teamed up with Paul Hilal, a principal at hedge fund Mantle Ridge, to prod CSX to make a management change.

Hilal was formerly with Pershing Square Capital. The latter is run by William Ackman, who played a key role in getting Harrison named CEO at Canadian Pacific in 2012 after winning a proxy fight.

Harrison, 72, this week said he is severing his ties with CP before his official retirement from the company.

He will be succeeded at CP by Keith Creel, effective Jan. 31. In the interim, Harrison is reported to be on vacation and Creel will assume Harrison’s duties.

Harrison has agreed to sell all of his shares of CP stock by May 31 and the CP board of directors agreed to provide him with a limited waiver of a non-compete clause to which he would otherwise be subjected.

In return for waiving the non-compete clause, Harrison will forgo all roles he had with CP and give up substantially all benefits and perquisites to which he was entitled. The total value of those forfeited benefits is $89 million.

The CSX takeover attempt would be Harrison’s second. CSX rejected his overtures in 2014.

The WSJ reported that CP will not participate in any effort that Harrison makes to gain control of CSX.

Hilal left Pershing Square last year to start his own activist fund, which has raised more than $1 billion for a single investment, according to the WSJ. Those investors reportedly have committed to keeping money in the fund for five years.

Harrison became the CEO of CP after Ackman led a proxy fight that resulted in the ouster of CP CEO Fred Green.

If Harrison and Hilal follow that same script at CSX, they will seek to oust Ward, who has indicated he plans to retire in 2019.

Hilal was with Pershing Square at the time of the CP takeover and recruited Harrison, who had been CEO of Canadian National.

Railway Age magazine quoted Cowen and Company Managing Director Jason Seidl as observing, “Hunter left C$118 million in equity awards on the table, which indicates to us he still has a burning desire to run a railroad. His reputation of being the most sought after manager in the North American railroad industry could make it very difficult for CSX to refute Harrison’s desire to run its franchise.”

Seidl told Railway Age that a CSX takeover would differ from what Harrison attempted at NS because the latter involved a merger whereas the CSX gambit would be just a management switch.

Railway Age quoted an unnamed railroad industry analyst as predicting that if Harrison is able to become head of CSX a merger with CP will not likely be one of his first priorities.

The analyst said that Harrison could be expected to change the CSX engineering, train operations and capital investments plans that Ward’s management team has been implementing over the past year.

Given Harrison’s track record, the analyst expects that he would impose at CSX a more aggressive capital expenditure downsizing and reduce its labor force.

Harrison would not be likely to institute more aggressive marketing and selling promotions, but would oversee creating more discipline in CSX train operations.