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American ShipperShipping

CSX stock hits 5-year high on Harrison takeover talk

Shares in the Jacksonville, Fla.-based Class I railroad jumped 23.4 percent on Thursday to close at $45.51 following reports outgoing Canadian Pacific CEO E. Hunter Harrison could be eyeing CSX as his next landing spot.

Source: Jonathan Weiss/Shutterstock
Shares in CSX jumped 23.4 percent on Thursday to close at $45.51

   CSX Corp.’s stock hit a 5-year high on Thursday on speculation that outgoing Canadian Pacific Railway (CP) CEO E. Hunter Harrison may be eyeing the Jacksonville, Fla.-based Class I railroad as his next landing spot.
   Shares in CSX jumped 23.4 percent on Thursday to close at $45.51, the biggest jump in company stock in more than 36 years, but came back to earth slightly on Friday, ending the day at $44.33.
   The reports came as CP announced Harrison would retire effective immediately, nearly six months ahead of the previously announced schedule, causing him to forfeit benefits and equity awards totaling $118 million Canadian (U.S. $88.6 million). According to anonymous sources quoted by the Wall Street Journal, Harrison’s early exit is all part of a plan to team up with activist investor Paul Hilal and pursue a leadership position with CSX.
   Hilal knows Harrison well from his time at billionaire Bill Ackman’s Pershing Square Capital Management, which won a proxy fight to install Harrison as CEO at CP in 2012 following the firm’s acquisition of a minority stake in the company. Ackman’s college roommate and a former CP board member, Hilal left Pershing Square last January and started his own firm, Mantle Ridge LP, in November.
   Harrison has long been an advocate for consolidation in the North American railroad industry, and analysts have already begun to speculate as to his intentions with CSX. Under Harrison’s guidance, CP in late 2015 and early 2016 engaged in a highly public, albeit unsuccessful, takeover attempt of fourth-largest U.S. railroad Norfolk Southern.
   With Harrison’s protege and current Chief Operating Officer Keith Creel taking the reigns at CP, some have posited that a merger between CP and CSX could be in cards should Harrison be installed at CSX. 
   Whether shareholders would vote Harrison into a leadership role, let alone vote in favor of a merger, is another question entirely. And any deal would still be subject to approval from the U.S. Surface Transportation Board and the relevant regulatory authorities in Canada.
   Asked about a potential CP-NS tie-up, last January Federal Railroad Administrator Sarah Feinberg said any merger involving a major U.S. railway could result in “significant safety hurdles.” Although the FRA doesn’t have the authority to block railroad mergers, the STB does empower the administration to ensure any merger would not result in any safety issues.
   CSX earlier in the week posted a 13 percent year-over-year decline in earnings for 2016 and, according to multiple media outlets, issued the following statement regarding the reports Harrison and Hilal could be targeting the company.
   “CSX Corp. welcomes the views of all of our shareholders and always considers their thoughts on the company’s business strategy,” the company said. “Likewise, its board and management team remain supportive of the company’s strategic growth strategy, which has started to deliver sustainable value for shareholders. The company and its board of directors will actively evaluate Mantle Ridge’s 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.”

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