By Paul Ziobro and Jacquie McNish 

CSX Corp. shares fell 12% early Friday, erasing nearly $6 billion in market value, after Chief Executive Hunter Harrison was placed on medical leave, highlighting the risk the railroad's board took when it agreed to hire the 73-year-old railroad veteran despite the emergence of unspecified medical problems earlier in the year.

Jim Foote, who was appointed acting CEO by CSX's board on Thursday, told investors in a call Friday morning that Mr. Harrison became ill last week after one of his regular multiday pep-talks with management, known as Hunter Camps. The illness 'led to medical complications," Mr. Foote said.

Mr. Foote declined to discuss details of Mr. Harrison's condition, but said "he continues to improve every day." He didn't say when Mr. Harrison, who has been using an oxygen tank in recent months and largely working from his home in Wellington, Fla., might return.

Mr. Harrison's absence leaves an executive team that is rebuilding after the exodus last month of three senior executives including chief operating officer Cindy Sanborn. Mr. Foote, who was recently hired as operating chief, was a marketing executive at Canadian National Railway Co. when Mr. Harrison led a turnaround of the Canadian company.

No CSX board members participated in Friday's conference call. The board was revamped earlier this year after activist investor Mantle Ridge led a successful campaign to replace five of CSX's directors and install Mr. Harrison as the company's CEO.

CSX's board initially resisted the change, citing in part concerns about Mr. Harrison's health, but ultimately reached a deal with the activist group after CSX shares surged 30% on Mr. Harrison's potential appointment. The company awarded -- and investors approved -- Mr. Harrison a four-year contract, which included an $84 million payment.

Mr. Harrison was eight months into a turnaround strategy he called precision railroading at the time of his illness. The plan, which included new train schedules, cost-cutting and terminal closures, was beset with a number of traffic congestion problems and other issues that triggered an outpouring of customer complaints.

Mr. Foote said the company has recently made progress with the "disruptive" strategy and "I do not see any reason to diminish our expectations." He said Mr. Harrison has already made the most significant structural changes to how CSX operates, including shutting eight of the 12 yards that sort trains and closing numerous lanes where CSX operates intermodal trains.

"The real, real, real heavy lifting has already been done," he said on Friday.

Mr. Foote also declined to comment on longer term succession planning at CSX. Some analysts viewed the hiring of Mr. Foote, age 63, as a means to fill a No. 2 role instead of having him slide into the top job. Mr. Foote said CSX has the right team to carry out the turnaround plan. "These people here are clearly able to run this railroad," he said.

In an interview, Mr. Foote said he was brought in by CSX's board to work under Mr. Harrison and implement his plan. "I expected to be working for Hunter for four years, and, God, I hope he comes back and we can continue to work together some more," he said. "My only conversation with the board was coming in as the chief operating officer and doing everything I could to help CSX and Hunter in running the company."

The latest developments highlight the risk that CSX, its board and investors took when hiring a CEO with known health risks. While at Canadian Pacific, Mr. Harrison took a medical leave in 2015 after leg surgery and a bout of pneumonia. As it courted shareholders to its side, Mantle Ridge argued that no other railway executive could improve operations at CSX as well as Mr. Harrison.

"Hunter Harrison is a unique talent and leader and if he is unable to return to the company it would raise real questions over CSX's long-term margin potential," Citi analyst Christian Wetherbee wrote in a research note Friday.

CSX had a tough decision in hiring Mr. Harrison. The potential for his arrival alone added about $10 billion in market value to CSX in January and shares have traded at a higher multiple versus other railroads since. The shares, which were trading around $35 in January before Mr. Harrison was involved and neared $60 this week, fell $6.86 to $50.45 in premarket trading on Friday.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Jacquie McNish at Jacquie.McNish@wsj.com

 

(END) Dow Jones Newswires

December 15, 2017 08:59 ET (13:59 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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