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