CSX Corp. says its top two executives will retire, moves that could ease the way for Hunter Harrison to take charge at the Florida-based railway.
Michael Ward, CSX chairman and chief executive officer, and president Clarence Gooden will retire by May 31, CSX said on Tuesday, part of an “orderly transition” the company said it has been considering for a year. CSX named marketing chief Fredrik Eliasson as president, but said the shift “is not intended to pre-empt or otherwise affect any discussions CSX may continue to have with Mr. Hunter Harrison and Mantle Ridge regarding Mr. Harrison becoming the CEO at CSX.”
Talks between CSX and Mr. Harrison, backed by U.S. investor Paul Hilal’s Mantle Ridge fund, have stalled over what CSX describes as “extraordinary” demands for pay and control of the board room.
The two sides have not agreed on a deal that would install Mr. Harrison as CEO, a person familiar with the matter said on Tuesday morning.
CSX said Mr. Harrison is seeking a four-year contract worth $300-million (U.S.), including $84-million to cover the amount forfeited when he retired early from Canadian Pacific Railway Ltd. in January. “The CSX board believes that the governance requests would grant effective control of CSX to a less than 5-per-cent shareholder [Mantle Ridge],” CSX said.
“Mr. Harrison has declined CSX’s request that an independent physician designated by the CSX Board conduct a prehire review of Mr. Harrison’s medical records,” said CSX, which has extended the board seat nomination deadline to Feb. 24 and called a special meeting on March 16 to find out what its shareholders think.
Mr. Harrison, 72, was sidelined for several weeks in 2015 by serious health problems, including surgery to improve leg circulation and pneumonia.
Mr. Hilal, in an open letter to CSX last week, said the $300-million figure was a “gross mischaracterization” of Mr. Harrison’s demands and that new board members are needed to ensure the success of the transformation.
“As we’ve discussed, precision scheduled railroading requires dramatic operational and cultural change” Mr. Hilal said in the lengthy letter. “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 any one.”
“Without enormous board support, the outcome and rate of the transformation will be at risk,” Mr. Hilal said, adding he is open to negotiations on some points.
Mantle Ridge has lowered its board representation demand to five seats from six, a sign analysts say could mean a deal is not far off.
“There’s a chance we could see a resolution earlier than the March 16 special meeting,” said Walter Spracklin, a stock analyst at Royal Bank of Canada.
On Tuesday, the stock was up by less than 1 per cent.
The CSX share price has soared by more than 25 per cent since it was reported Mr. Harrison was seeking to replace Mr. Ward, a 38-year veteran of CSX.
Mr. Harrison is favoured by some CSX shareholders because of his reputation as a cost cutter who boosts profit and share prices. He has performed the feat at three railways: CP, Canadian National Railway Co. and Illinois Central Gulf Railroad Co.
Mr. Ward has been CEO at CSX for 14 years and was expected to retire before long, leaving the company with no obvious internal replacement.
Mantle Ridge declined to comment on Tuesday.Report Typo/Error