Former CP head Harrison on track for CSX leadership, sources say

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An expected leadership vacuum at CSX Corp. raises the odds Hunter Harrison will be able to take charge at the Florida-based railway without much of a fuss, analysts say.

Michael Ward, CSX's chief executive officer and chairman, has been at the company for 39 years and his expected retirement date is not far off. But when he looks at his roster of executives, no obvious successor leaps out, say analysts who cover the company.

Oscar Munoz, CSX's president and heir-apparent to the CEO job, left the carrier in 2015 to become CEO of United Airlines. Enter Mr. Harrison, who shocked the industry last week with his early departure from Canadian Pacific Railway Ltd. People familiar with the matter say Mr. Harrison is working with Paul Hilal's Mantle Ridge fund to try to take the CEO's job at CSX.

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"We believe that the probability of this event occurring is fairly high without going down the road of a bruising proxy battle," said Fadi Chamoun, a stock analyst at Bank of Montreal. "CSX is already at the cusp of a CEO transition, and we sense that bringing Hunter Harrison's seasoned leadership and proven operating model for a three- [or] four-year period represents an opportunity for the shareholders and also for the currently lesser experienced but very capable management team at CSX."

CSX's share price has risen by 25 per cent to $46 (U.S.) since news broke of Mr. Harrison's move.

A CSX spokesman said the company and its board will "actively evaluate Mantle Ridge's views."

"As a matter of policy, we never comment on possible private conversations with any shareholder," Gary Sease, a CSX spokesman, said in a e-mail on Monday.

Mantle Ridge declined to comment.

Mr. Chamoun said in a research note Mr. Harrison's precision-railroading model – essentially cost cuts and better service – could substantially improve CSX's ratio of revenue versus expenses. CSX also has a chance to boost revenue, he said, given it runs in the eastern half of the United States, a population- and industry-dense area that reaches several ports on the Atlantic and Gulf coasts. Under Mr. Harrison's leadership, CSX's share price could hit $60 in 12 months and $80 over the longer term, Mr. Chamoun said.

"We believe that operating improvements would result in a faster pace of free-cash-flow growth, and this additional cash flow could be redeployed towards share repurchases," he said.

If Mr. Hilal's Mantle Ridge and Mr. Harrison resort to a proxy fight, it will be a familiar story. Mr. Harrison took charge at CP in 2012 after a bitter battle led by investor Bill Ackman's Pershing Square Capital. Mr. Hilal, a recently departed CP board member, was a partner in Pershing Square and helped recruit Mr. Harrison for the CP job.

At CP, the Memphis-born Mr. Harrison cemented his reputation as a hard-nosed operator who could squeeze assets and slash costs while boosting the stock price.

Anthony Hatch, a New York-based rail analyst, agrees there is no obvious successor at CSX to Mr. Ward. He said Mr. Harrison would have his pick of the three marketing, operating and finance chiefs who are "supposedly competing to see who can take Michael Ward's place."

"He's always been good about coming in and finding out who's with him, who wants to move on, who's going to go to Hunter camp, become an acolyte and drink the Kool-Aid," he said.