Posts Tagged ‘U.S. Class 1 Railroads’

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.

5 Class 1 RRs to Cut 2017 Capital Spending

January 28, 2017

Five of North America’s seven Class 1 railroads plan to spend less in 2017 on capital spending than they did last year.

train image2Norfolk Southern’s capital budget will remain static at $1.9 billion while at CSX capital spending will fall from $2.7 billion to $2.2 billion.

The NS budget includes $930 million for track maintenance, $290 million for locomotives, $240 million for positive train control, $170 million for facilities and terminals, $110 million for technology and similar initiatives, $80 million for infrastructure, and $50 million for freight cars.

The CSX budget figures include $307 million in payments for locomotives that were purchased under seller financing and delivered in 2015.

In 2017 equipment investments are significantly less due to the completion of locomotive purchases.

Canadian Pacific plans to spend C$1.25, an increase of 6 percent from the 2016 budget with around 70 percent of that earmarked for basic replacement and maintenance of way work

Union Pacific has cut its capital budget by 11 percent compared with 2016. The western freight hauler plans to spend $3.1 billion, compared with $3.5 billion last year.

BNSF is cutting capital spending by 13 percent from $3.9 billion to $3.4 billion, saying it has invested a lot of capital in network improvements and growth during the past several years.

At Canadian National, capital spending for 2017 has been set at C$2.9 billion of which C$1.6 billion is for for basic track infrastructure work.

Kansas City Southern has slashed capital spending by about $30 million and expects to spend between $550 million to $560 million in 2017.

Class 1 RR Employment Fell 0.84% in December

January 24, 2017

The U.S. Surface Transportation Board said that employment at Class 1 railroads fell 0.84 percent in mid December 2016 when compared with mid November.

STBThe STB said the railroads employed 150,215 workers last month. The December 2016 figure was a drop of 6.58 percent from December 2015.

Decreases occurred in most reported employment categories between November and December with the exception of a 0.34 percent increase in maintenance of ways and stores, which had 28,298 workers.

The number of executives, officials and staff assistants fell 1.73 percent to 8,986 employees; professional and administrative, down 0.68 percent to 13,124; maintenance of way and structures, down 2.2 percent to 34,404; transportation (other than train and engine), down 0.22 percent to 5,922; and transportation (train and engine), down 0.57 percent to 59,481.

When comparing December 2015 with December 2016, all categories saw declines in employment.

Executives, officials and staff assistants declined 6.2 percent; professional and administrative, down 7.54 percent; maintenance of way and structures, down 4.22 percent; maintenance of equipment and stores, down 6.92 percent; transportation (other than train and engine), down 10.97 percent; and transportation (train and engine), down 7.13 percent.

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.

Class 1 Employment Fell in November

January 4, 2017

Employment at Class 1 railroads fell by 0.27 percent in the period of mid-October to mid-November 2016, the U.S. Surface Transportation Board said.

STBThe railroads employed 151,495 workers, which was a drop of 0.27 percent from the same period of 2015.

Showing increases in employment were executives, officials and staff assistants, up 0.59 percent to 9,144; maintenance of equipment and stores, up 0.1 percent to 28,201; and transportation (train and engine), up 0.1 percent to 59,822.

Falling during the period were professional and administrative, down 0.55 percent to 13,214; maintenance of way and structures, down 1.27 percent to 35,179; and transportation (other than train and engine), down 0.34 percent to 5,935.

CSX To Shut Down on Christmas Eve

December 20, 2016

CSX said this week that it will shut down operations on Christmas Eve and reopen on Dec. 26.

CSX logo 1In a customer service advisory, CSX said operations will cease at 3 p.m. on Dec. 24 and resume at 7 a.m. on Dec. 26.

That is similar to a shutdown announced last week by Norfolk Southern, which plans to shut down on Dec. 24 remain idle until Dec. 27. NS has said that it will “not accept trains at interchanges” during the days that it is closed.

Trains magazine observed that also other Class I and regional railroads are scaling back operations on non-essential route, none are planning complete shutdowns as are NS and CSX.

Amtrak and commuter trains that use CSX and NS are not expected to be adversely affected by the holiday service closures.

Mediation Sought in Railroad Negotiations

December 11, 2016

Railroad labor unions are seeking mediation after they say that talks with five Class 1 railroads have broken down.

train image2The request to the National Mediation Board was made by the Rail Labor Coordinated Bargaining Group, which represents 85,000 workers.

The group has been meeting with the National Carriers’ Conference Committee, which represents BNSF, Union Pacific, Kansas City Southern, CSX and Norfolk Southern.

The negotiations have drug on for two years and focused on such issues as health care, compensation and workplace rules.

If the federal mediation board cannot help break the impasse or if they do and either side rejects their solution, a 30-day cooling off period is enacted before any strike or lockout could occur.

In a statement, the unions said the railroads are seeking to take advantage of the current political climate.

A spokesperson for railroads said that they welcome the intervention of federal mediators in helping the two sides find common ground.

The negotiations were instituted by the railroads in November 2014. The unions involved as the Brotherhood of Locomotive Engineers and Trainmen and the Transportation Division of the International Association of Sheet Metal, Air, Rail and Transportation Workers.

The railroads are seeking to connect wages to performance, reexamine healthcare coverage and costs, and modify work rules that the carriers claim interfere with or inhibit their ability to provide customers with timely, high quality and cost-effective service.

Class 1 RR Employment Fell in October

November 29, 2016

Employment at U.S. Class I Railroads fell 8.28 percent in October 2016 when compared to what it was in the same month a year earlier.

STBA report by the Surface Transportation Board found that the railroads employed 151,900 in October 2016, which was down 0.38 percent compared with September employment numbers.

All reported employment categories reflected workforce decreases in October when compared to the same month a year earlier and when compared to September 2016 employment.

Class 1 RR Employment Dipped in September

October 18, 2016

Although some furloughed train and engine employees were recalled in September, U.S. Class I railroad employment still fell during the month.

STBThe U.S. Surface Transportation Board said rising grain shipments led the railroads to call back to work some T&E employees.

That sparked an 0.34 percent increase in T&E employees during September over August. The STB said 59,831 people were employed in T&E service in September.

However, employment in all other railroad categories fell with railroad payrolls shrinking by 0.17 percent, to 152,486 employees.

U.S. Class I railroad employment is down 8.7 percent versus from a year ago. Train crews continue to face the deepest cutbacks, with their numbers down 11.1 percent versus a year ago.

CSX, Canadian Pacific operations in the U.S., Kansas City Southern, and Norfolk Southern employment all dropped slightly during September.