Friday, February 17, 2017

It’s getting a bit windy around Jacksonville

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Press releases disguised as letters? Or letters disguised as press releases? In a corporate power struggle, either method can be deployed with the intent of influencing shareholders. Both sides in the power struggle tend to get rather long-winded, to put it politely.

Such is the case in yet another saga involving a hedge fund and a Class I railroad. This time around, it’s Mantle Ridge LP, led by ex-Pershing Square Capital Management (William Ackman—remember him?) strategist, partner and proxy campaign warrior Paul Hilal, CSX, and Hunter Harrison.

Below the blustery, wind-whipped surface, it’s pretty simple, so I’ll simplify it: Hilal wants to make lots of money, fast. That’s the standard hedge fund MO. (If you don’t know what MO stands for, trying watching reruns of “Dragnet” or “Adam-12.” Just the facts, mister.) CSX looks pretty ripe for a takeover. The CEO, Michael Ward, wants to retire fairly soon. Hunter still has lots of skin in the game. Let’s install him as CEO, and let him do what he does best. And while we’re at it, let’s grab a few board seats. The operating ratio goes down through streamlining and cost-cutting. The stock price goes up (it already has, by the way). The shareholders make lots of money. Hilal cashes out and moves on to his next project. “Hey CSX, let’s see if we can do this nice and friendly-like.”

Easy, right?

Not really. By most accounts, CSX would like to bring Hunter on board. And why not? Look at what he accomplished at Illinois Central, CN and Canadian Pacific. (He didn’t make it to Norfolk Southern, but that’s another story.) Pershing Square approached CSX about two years ago and was told, “Not interested. Go away.” But circumstances have changed.

Problem is, Mantle Ridge and Hilal are asking for waaaaaaaaay too much. (And please Dear Lord, I hope Hilal didn’t choose the name “Mantle” to honor legendary New York Yankees switch-hitter Mickey Mantle, because I don’t think “The Mick” would be too thrilled. He did use the phrase “if Hunter knocks the cover off the ball,” which leads me to believe No. 7 is turning in his grave.)

On Feb. 14, CSX released a lengthy press release, with all the dollar-filled details, that basically said, “You’re asking for too much. What do we look like, a freakin’ bank? Yeah, Hunter’s great, but come on! Let’s see what our shareholders think.”

Hilal is, simply put, pissed off: “Why’d you go and do that, CSX? I thought we were having a nice private conversation. Now you go and shoot your big mouth off. Well, guess what: I can do that too!”

And Hilal did. His “letter” to CSX Presiding Director Edward J. “Ned” Kelly III is 3,394 words long (including disclaimers). It’s really, really, REALLY long-winded—a hurricane, actually. If you want to read it, you can download it at the link below.

The last line of the letter is a bit, shall we say, misogynistic: “As before, I’ve taken the liberty of copying the other members of the Board as well as Ms. [CSX Executive Vice President of Law and Public Affairs, General Counsel and Corporate Secretary Ellen] Fitzsimmons. Ms. Fitzsimmons, please pass on copies of this letter to every other Board member.”

Well, excuse ME! Hey Mr. Hilal, “Ms. Fitzsimmons” isn’t your personal secretary. She can probably run circles around you. (She’ll never say that publicly; she has way too much class.) If you have a burning desire to tell a woman what you think she ought to do with her time, or how she should be doing her job, go see the President of the United States. He’s an expert.

What does Hunter Harrison think of all this blustering? By some accounts, he’s not happy. He just wants to get down to business and run a railroad, his true calling, his only love (besides his wife and family). For Hunter, it’s not about the money. According to Seeking Alpha News Editor Carl Surran:

WSJ: Harrison frustrated by clash between CSX board, activist partner. Would-be CSX leader Hunter Harrison tells The Wall Street Journal he is frustrated that ‘chest pounding’ between activist investor partner Paul Hilal and CSX directors contributed to a breakdown in negotiations for him to take the helm. Harrison says that although he is ‘disappointed’ that Hilal was unable to reach an agreement with CSX, ‘I am not trying to abandon anyone.’ CSX privately offered the CEO position to Harrison last week, but negotiations broke down when Hilal refused to back away from some compensation and governance demands; CSX’s board also said it had concerns about giving six board seats to a shareholder with less than a 5% stake. The standoff caused CSX to take the unusual step earlier this week of calling for a special shareholder vote on the demands, at a date to be determined. Harrison says he remains willing to meet with CSX directors to reconsider the terms of his compensation package.”

“Chest pounding”? You got it right, Hunter. Lots of testosterone at work here. High winds and heavy seas in the immediate vicinity of Jacksonville, Florida. Big money in play.

Stay tuned. More to come. Am I having fun yet?

P.S. Thank you, CSX, for the short response to Hilal’s version of War and Peace: “As demonstrated by our recent actions, the CSX Board of Directors is always willing to engage in constructive dialogue with our shareholders and to consider their views on our Company’s business and strategy. The Board will carefully review the letter sent to us this evening by Mantle Ridge and continue to act in the best interests of all CSX shareholders.”

Mickey Mantle


William C. Vantuono, Editor-in-Chief

With Railway Age since 1992, William C. Vantuono has broadened and deepened the magazine's coverage of the technological revolution that is so swiftly changing the industry. He has also strengthened Railway Age’s leadership position in industry affairs with the conferences he conducts, among them Next-Generation Train Control, Light Rail, and Rail Insights. He is the author or co-author or editor of several books, among them All About Railroading; John Armstrong’s The Railroad: What It Is, What It Does; Railway Age’s Comprehensive Railroad Dictionary; and Planning, Engineering, and Operating Light Rail, With Applications in New Jersey.