CSX shareholder backs Harrison for CEO as activist swoops in

Wed Jan 25, 2017 6:55pm EST
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By Michael Flaherty and Allison Lampert

NEW YORK/MONTREAL (Reuters) - A portfolio manager from an influential shareholder has thrown her support behind a plan to put railroad industry veteran Hunter Harrison into CSX Corp's CSX.O CEO chair with the help of an activist investor.

Harrison, 72, the outgoing chief executive of Canadian Pacific Railway Ltd (CP.TO: Quote), is partnering with activist investor Paul Hilal's new fund, Mantle Ridge LP. The fund is acquiring a large stake in CSX with the hope of installing Harrison to improve the U.S. railroad’s performance, people familiar with the matter have said.

"I think it's a win-win. He's demonstrated, time and again, a unique gift to run a railroad," said Sandy Pomeroy, a portfolio manager at Neuberger Berman LLC, which owned 1.2 percent of CSX shares as of Sept. 30 and is the company's tenth-largest shareholder.

"It's hard to imagine he can't go into CSX and improve operations faster," said Pomeroy, one of several Neuberger portfolio managers who own CSX shares.

While Pomeroy's backing provides a key boost for their plan, the move could still face stiff resistance from CSX, which successfully fended off an activist attempt from TCI Management and 3G Capital Partners in 2008.

Harrison's track record of cutting operating costs and driving up profitability at the helm of CP and at Canadian National Railway Co (CNR.TO: Quote) has boosted CSX shares 30 percent since news of the Mantle Ridge plan surfaced last week.

Investors are betting that Harrison can engineer similar improvements at the third-largest U.S. railroad and hope his quest to consolidate the industry could result in a deal for CSX. Harrison led an unsuccessful $28 billion bid last year by CP for U.S. railroad Norfolk Southern Corp (NSC.N: Quote).


CEO Hunter Harrison of CP answers shareholders questions during the company's annual general meeting in Calgary, Alberta, May 14, 2015. REUTERS/Todd Korol