Mantle Ridge, the investment firm that owns 4.9% of CSX Corporation, appears to be gaining traction in its bid to have Hunter Harrison appointed as CEO and bring a dose of his Precision Scheduled Railroading to the railway.
This month, CSX and Mantle Ridge exchanged open letters on a change of governance at CSX, and Mantle Ridge made its case for a new Board (appointed by CSX, with one member from Mantle Ridge) that embraces wholesale change.
Mantle Ridge believes CSX needs a complete Board that is fully prepared to embrace change: “As we’ve discussed, Precision Scheduled Railroading (PSR) requires dramatic operational and cultural change. 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. The messaging to all concerned constituencies that the external change agent – Hunter – is coming in with very substantial support, empowers Hunter. Conversely, without enormous Board support, the outcome and rate of the transformation will be at risk. As Hunter said in our own press release, ‘if we create the right conditions for success, we have the best chances for success’.”
CSX is clearly uncomfortable with replacing the majority of its Board, but Mantle Ridge CEO Paul Hilal said that while this is not a prerequisite, bringing in Harrison for a term of less than four years “could create material risk to the timely and successful implementation of PSR”. CSX also raised objections about the compensation package Mantle Ridge is demanding for Harrison, which it priced at US$300M, and said it is “extraordinary in scope” and “unusual, if not unprecedented”. Mantle Ridge responded that the package includes US$84M in “extraction costs” to free Harrison from non-compete arrangements with Canadian Pacific Rail, and that CSX is incorrectly valuing option grants that Harrison would receive at US$160M by not allowing for the 27% surge in share price when Harrison became publicly linked with CSX.
Mantle is also emphasising that the grant of options is performance-based and “only has meaningful value if Hunter knocks the cover off the ball, in which case the magnitude of the package would de minimis relative to the value he uniquely could create. And it would certainly be deserved”.
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This complete item is approximately 300 words in length, and appeared in the February 2017 issue of WorldCargo News, on page 19. To access this issue download the PDF here.
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