United Continental Holdings Inc. said Chief Executive Jeff Smisek had stepped down and named CSX Corp. Chief Operating Office Oscar Munoz as his replacement, effective immediately.SHANNON STAPLETON/Reuters
An executive shakeup at United Airlines Inc. has left railway CSX Corp. without an heir apparent to the CEO's throne and could reignite speculation about a merger with Canadian Pacific Railway Ltd.
Oscar Munoz, CSX's president and chief operating officer, has left to take the top job at United Airlines, which said the departure of chief executive officer Jeff Smisek and two other executives was related to a U.S. probe of the airline.
Mr. Munoz, 56, joined Florida-based CSX in 2003, and was seen as a likely successor to the railway's CEO, Michael Ward, 65.
"We can't help but believe that Mr. Munoz's departure will resurrect some discussion of CP's fall merger discussions with CSX," Citigroup analyst Christian Wetherbee said. "However, we still believe a merger between the two companies is unlikely."
Calgary-based CP said in October that its proposed merger with CSX was rebuffed because CSX executives did not believe U.S. regulators would approve the deal at a time many customers were complaining about poor rail service across North America.
Hunter Harrison, CP's CEO, has since said he believes mergers would improve service, but he cannot find a "dance" partner.
Mr. Harrison, who took the helm in 2012 after a battle for boardroom control, has endeared himself to investors by slashing costs, driving down a closely watched operating ratio and overseeing a share price that tripled in three years. Shares in CSX, by contrast, have lagged. Also on Wednesday, CSX cut its full-year profit guidance, blaming the plunge in coal shipments.
Analysts took the earnings revision in stride, but expressed concern over the loss of the CEO-in-waiting, who has been credited with improving operations at CSX.
"The sudden departure of Munoz is a bit more concerning as service recovery [and inherent operating ratio improvement] is a key aspect of our investment thesis," Walter Spracklin, an equities analyst with Royal Bank of Canada, said in a note to clients. "That said, we see no reason why the current management team will be unable to execute on the operating plan going forward."
In a research note, Mr. Wetherbee called the departure of Mr. Munoz "a negative" for CSX.
"Without Mr. Munoz, we see the leadership at CSX as somewhat top- and bottom-heavy, lacking a near-term replacement for Mr. Ward. Ultimately, we believe it's possible to see Mr. Ward and Clarence Gooden [newly elected president and former chief marketing officer, 63 years old] stay on longer than originally anticipated to groom less seasoned C-level executives, or the board may need to look outside to find a more near-term replacement."
Mr. Wetherbee said potential candidates for the top job at CSX are Jim Vena, COO of Canadian National Railway Co., and Rob Knight, Union Pacific's chief financial officer.
Possible internal candidates for the CEO's job at CSX are Fredrik Eliasson, the newly appointed marketing chief; Cindy Sanborn, the newly appointed COO; and Frank Lonegro, the new finance chief. Mr. Wetherbee said all three would need more experience before becoming credible candidates.
Morningstar analyst Keith Schoonmaker said he was not concerned about the shakeup at CSX because the company responded by promoting "highly experienced railroaders."
Investors are apparently not bothered by the moves, either. Shares in CSX, CP and United Continental were little changed on Wednesday.
Meanwhile, U.S. federal prosecutors are continuing their probe of United Airlines' ties with David Samson, the ex-chairman of the Port Authority of New York and New Jersey. Published reports said the airline offered flights to Columbia, S.C., to cater to Mr. Samson, who has a home there. The service was cancelled after his resignation.
Eric Atkins