A day after CSX Corp. Chairman and CEO Michael Ward expressed optimism about 2017, an old thorn reappeared in his side.
Canadian Pacific Railway Ltd. CEO Hunter Harrison, who tried and failed to convince Ward to merge the two major railroad companies in 2015 and 2016, abruptly retired from his post and indicated he wants to use his time shaking up CSX management.
According to a Wall Street Journal report, Harrison is teaming up with activist fund manager Paul Hilal to take on CSX, although it’s unclear exactly what his plan is.
Still, the news sent CSX’s stock soaring Thursday for its biggest one-day gain in more than three decades.
“CSX Corporation welcomes the views of all of our shareholders and always considers their thoughts on the company’s business and strategy. Likewise its board and management team remain supportive of the company’s strategic growth strategy, which has started to deliver sustainable value for shareholders,” Jacksonville-based CSX said in a statement Thursday afternoon.
“The company and its board of directors will actively evaluate Mantle Ridge’s (Hilal’s fund) views and look forward to discussing our core strategy to continue driving earnings growth and shareholder value going forward with Mantle Ridge and all our shareholders,” it said.
Canadian Pacific announced Harrison’s resignation late Wednesday, saying in a news release “he had approached the board to discuss his retirement from CP and potential related modifications to his employment arrangements that would allow him to pursue opportunities involving other Class 1 Railroads.”
As Harrison sought a merger with CSX or the other major Eastern U.S. railroad company, Norfolk Southern Corp., over the previous two years, Ward said repeatedly that a big railroad merger was unlikely because there would be too many regulatory hurdles to overcome.
After getting rebuffed by CSX and Norfolk Southern, Harrison said in April he had given up on the idea of a major railroad merger.
Ward has faced a proxy fight before. In 2008, four candidates nominated by The Children’s Investment Fund Management LLP and 3G Capital Partners Ltd. won election to CSX’s 12-member board of directors, but Ward maintained his control over the company.
CSX ended Thursday up $8.63 to $45.51, a 23.4 percent increase, which was the stock’s largest one-day gain since at least 1980.
The stock had fallen $1.21 to $36.88 Wednesday after the company reported fourth-quarter earnings of 49 cents a share, a penny below the average analysts’ forecast.
Although Ward said he is optimistic about economic trends this year, investors were not enthusiastic until the news emerged about Harrison’s interest in the company.
“An underwhelming set of fourth-quarter numbers and vague FY17 guidance met our ‘underweight’ thesis (but missed lofty consensus expectations) and the initial stock reaction reflected the disappointment,” Morgan Stanley analyst Ravi Shanker said in a research note Thursday.
“However, the unexpected CP CEO retirement and possible activism could bring more bullish outcomes into play,” he said.
Shanker raised his rating on CSX to “equal weight.”
“In the near term, given the potential activist interest, the stock is not likely to trade on fundamentals until a resolution, which drives our upgrade,” he said.