Canadian Manufacturing

CSX may not be the only target for CP Rail chief Hunter Harrison

The well-known railroader will depart the Canadian railroad Jan. 31, forfeiting $118 million to cut ties, and creating widespread industry speculation

January 25, 2017  by Josh Funk, The Associated Press

Hunter Harrison has led Canadian Pacific Railway since 2002. He will officially step down as CEO at the end of the month. PHOTO: CP

OMAHA, Neb.—The executive who led Canadian Pacific’s financial turnaround may have a backup plan if his pursuit of CSX railroad gets derailed.

Hunter Harrison announced his retirement from CP last week and is now reportedly targeting CSX with investor Paul Hilal, who left hedge fund Pershing Square last year and has raised more than $1 billion to start his own fund.

The terms of the 72-year-old Harrison’s separation agreement with Canadian Pacific Railway Ltd. prohibit him from working at Canadian National, Union Pacific Corp. or BNSF railroads. But in addition to CSX, it also allows him to jump to Norfolk Southern Corp. or Kansas City Southern.

Edward Jones analyst Dan Sherman said CSX and Norfolk Southern are the most likely takeover targets. CP pursued mergers with both of those railroads under Harrison’s leadership.


Both CSX and Norfolk Southern are poised to produce better profits because the sharp decline in coal demand over the past several years is slowing and both those railroads have been working to reduce costs, Sherman said.

“These two make the most sense because he can make the most difference,” Sherman said.

CSX stock has soared more than 27 per cent since last week when Harrison’s plan was reported, including gaining 1.5 per cent Tuesday. But all the major railroad stocks posted gains.

CSX Corp. spokesman Gary Sease said that railroad is open to talking with Hilal’s Mantle Ridge fund or any shareholder, but he wouldn’t confirm that any talks with the investment firm have happened.

Kansas City Southern spokeswoman Doniele Carlson said that railroad hasn’t had any conversation with Harrison. Norfolk Southern officials declined to comment Tuesday.

Harrison has used a strictly scheduled operating model to cut costs significantly at every railroad he has led. In addition to Canadian Pacific, Harrison also previously managed the Canadian National and Illinois Central railroads.

And Harrison has worked with activist investors before. He came out of retirement in 2012 to lead Canadian Pacific after Pershing Square Capital took a large stake in the railroad and forced management changes.

Canadian Pacific more than doubled its earnings per share to $10.63 in Canadian dollars from 2012 to 2016 while cutting over 6,000 jobs and using fewer locomotives.

Harrison agreed to forfeit roughly $118 million in stock options and pension benefits from Canadian Pacific as part of the separation agreement.