CSX Loses $6 Billion in Value After CEO Takes Medical Leave -- Update
16 December 2017 - 01:14AM
Dow Jones News
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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