CSX Names Harrison CEO, Warns He’ll Exit Without $84 Million
CSX Corp. appointed Hunter Harrison as CEO on March 7, effective immediately, entrusting the industry veteran with the task of turning around North America’s least efficient railroad. He’ll stick around as long as shareholders are willing to meet his pay demands.
Harrison will resign after the freight railroad’s annual meeting unless shareholders accept his request for $84 million to cover forfeited pay from his old job, plus the assumption of a related tax indemnity, CSX said in a statement. He’ll join the board along with ally Paul Hilal, the founder of activist fund Mantle Ridge, and three others with their backing.
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The CSX appointment sets up a new challenge for Harrison, 72, who in a five-decade career made Canadian Pacific Railway into a top performer, solidified Canadian National Railway as the leanest North American railroad and overhauled Illinois Central. He’s taking on his latest job less than two months after resigning as CEO of Canadian Pacific, where he used his “precision railroading” approach to transform the company with cost cuts and speedier service.
“The board is united behind a shared goal — creating value for shareholders and all stakeholders by implementing the Precision Scheduled Railroading model at CSX,” Hilal said in the statement March 6. “Together, we have created the conditions for success. Now the real work begins.”
CEO Mike Ward will retire effective immediately and become a consultant to CSX. Edward Kelly will take over Ward’s role as chairman of the board, while Hilal will become vice chairman.
CSX said shareholders should vote on whether to accept Harrison’s $84 million request. Mantle Ridge already agreed to protect Harrison on an interim basis with respect to that sum.
While an annual meeting has yet to be scheduled, typically it has been held in May, said Gary Sease, a spokesman for the Jacksonville, Florida-based company.
Harrison will be awarded options to purchase 9 million CSX shares at the current price. The options will vest over four years.
“Four years is a reasonable time rame for Mr. Harrison to execute precision railroading at CSX and achieve substantial operating improvements,” Walter Spracklin, an analyst with RBC Capital Markets in Toronto, said in a note to clients. He predicted Harrison would more than double annual profit to $4.02 a share by 2020.