Eastern Railroad Discussion > WSJ about Hunter and CSX

Starting a new thread to link the Wall Street Journal's coverage of Hunter Harrison leaving CP, and leaving a hundred million in potential earnings on the table. He's teaming up with Paul Hilal, who used to be a principal in Pershing Square Capital. Hilal did a lot of the heavy lifting, meeting with major investors, regulators etc in the CP deal. Neither Bill Ackman nor Pershing has invested with Hilal on this deal.

Mantle Ridge has a billion in its war chest, its charter allows them to invest the bundle in a single deal.  CSX has a market cap (value of all stock) of about forty billion, so they'd need to get a lot of investors on their side.

CSX operating ratio is about 70%, CP has a rate about 12 points less, lower is better.

Harrison is a cutter, and he's oriented to detail. He slashes management, and he slashes employees. but he gets the numbers down.

(subscription site)

Here's more.  CSX shares have soared in after-hours trading.

https://www.thestreet.com/story/13958458/1/canadian-pacific-ceo-early-departure-sends-csx-shares-soaring.html?puc=yahoo&cm_ven=YAHOO

He's ba-a-a-ck to thrill us again.

here is the NASDAQ verision

http://www.nasdaq.com/article/former-canadian-pacific-ceo-harrison-paul-hilal-in-talks-for-csx-stake-20170118-01472
 

any thoughts on buying some CSX stock now?
hollywood
NS B Line MP 74

Lackawanna484 Wrote:
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> CSX operating ratio is about 70%, CP has a rate
> about 12 points less, lower is better.

CSX yesterday reported an OR of 67.3, a nice improvement over the 71.9 of 4Q 2015.  It's not as though CSX will be an easy target, especially with a market cap of over $34 billion.

> Harrison is a cutter, and he's oriented to detail.
> He slashes management, and he slashes employees.
> but he gets the numbers down.

He eliminated at least 4700 jobs at CP.  But CP also reported an all-time low OR today. 
 



Edited 1 time(s). Last edit at 01/18/17 21:20 by calumet.

I for one am skeptical that Hunter's cut to the bone threadbare operating plans would be nearly as successful on the US class ones, particularly CSX and NS as they have been on the Canadian roads.  Some of the big reasons NS and CSX lag behind UP and BNSF are shorter hauls, lots of switching, and a more complicated route structures.  You could solve SOME of that by running off the rest of the loose car traffic, BUT with the demise of coal and crude oil, loose car freight might end up being what keeps the ships afloat. If I had the money, I would buy CSX stock, just to keep it out of these greedy blood sucker's hands.  I have NO USE for activist investors.  Don't like how a company is run? don't buy their stock.  Simple as that.

junctiontower Wrote:
-------------------------------------------------------
> I for one am skeptical that Hunter's cut to the
> bone threadbare operating plans would be nearly as
> successful on the US class ones, particularly CSX
> and NS as they have been on the Canadian roads. 
> Some of the big reasons NS and CSX lag behind UP
> and BNSF are shorter hauls, lots of switching, and
> a more complicated route structures.  You could
> solve SOME of that by running off the rest of the
> loose car traffic, BUT with the demise of coal and
> crude oil, loose car freight might end up being
> what keeps the ships afloat. If I had the money, I
> would buy CSX stock, just to keep it out of these
> greedy blood sucker's hands.  I have NO USE for
> activist investors.  Don't like how a company is
> run? don't buy their stock.  Simple as that.

So maybe the EHH/Paul Hilal strategy will be to wrest control of CSX from Ward/Sanborn et al with the goal of not just lowering OR but ultimately combining with CP. When EHH tried to have CP acquire CSX or NS, the targets were very unfriendly (in addition to many of the US politicos) but I'm guessing that CP would be very friendly to a merger overture from an EHH-led CSX. And US politicians might react more favorably to a US RR driven merger proposal as opposed to a Canadian acquisition of a US RR (plus there would likely be no tax inversion).

In fact, Keith Creel, soon to be CP CEO, had this to say at yesterday's CP Q4'16 earnings conference call when asked by an analyst about his vision for CP's future:

"...eventually there is going to be consolidation in this industry. I don’t know if it’s going to be 2 years, 3 years, 5 years, but it’s inevitable. Volume growth is going to come. Railways are not going to build. Consolidation will occur. And I can certainly see that happening within my career..."

Creel also offered in the con call this comment re: growth of CP intermodal business:

"... If you look at our franchise, our length of haul from Vancouver to Chicago is faster[...] if we partner and extend our reach East of Mississippi to reach into the Ohio Valley, to reach into Detroit, to reach into some of those markets. We got to [the] superior [r]out[e] if you partner with the right person. So that’s something we are looking at from a strategic standpoint for this next round of consolidations in ‘18 and ‘19..." (note: I made a few edits correcting what I believe were call transcription errors).

So maybe it's an effort to more than just Make CSX Great Again!  ;-)



Edited 2 time(s). Last edit at 01/19/17 04:14 by JPB.

"If you don't like the company, don't buy the stock."

That's one view and many people support that point of view.

Others prefer to find value where it's hidden, and harvest that profit.

Posted from Android

holiwood Wrote:
-------------------------------------------------------
> any thoughts on buying some CSX stock now?
> hollywood
> NS B Line MP 74

This stock surge today is based on hype.  If this doesn't happen, shares fall back to where they were yesterday.
CSX is a good stock to own, but I would not buy at this new inflated price.  Now if you are a buy and hold guy
and can live with the ups and downs and not panic sell, this is a good long term stock (as is NS, UNP, KSU)
 

JPB Wrote:
-------------------------------------------------------
> junctiontower Wrote:
> --------------------------------------------------
> -----
> > I for one am skeptical that Hunter's cut to the
> > bone threadbare operating plans would be nearly
> as
> > successful on the US class ones, particularly
> CSX
> > and NS as they have been on the Canadian
> roads. 
> > Some of the big reasons NS and CSX lag behind
> UP
> > and BNSF are shorter hauls, lots of switching,
> and
> > a more complicated route structures.  You
> could
> > solve SOME of that by running off the rest of
> the
> > loose car traffic, BUT with the demise of coal
> and
> > crude oil, loose car freight might end up being
> > what keeps the ships afloat. If I had the money,
> I
> > would buy CSX stock, just to keep it out of
> these
> > greedy blood sucker's hands.  I have NO USE
> for
> > activist investors.  Don't like how a company
> is
> > run? don't buy their stock.  Simple as that.
>
> So maybe the EHH/Paul Hilal strategy will be to
> wrest control of CSX from Ward/Sanborn et al with
> the goal of not just lowering OR but ultimately
> combining with CP. When EHH tried to have CP
> acquire CSX or NS, the targets were very
> unfriendly (in addition to many of the US
> politicos) but I'm guessing that CP would be very
> friendly to a merger overture from an EHH-led CSX.
> And US politicians might react more favorably to a
> US RR driven merger proposal as opposed to a
> Canadian acquisition of a US RR (plus there would
> likely be no tax inversion).
>
> In fact, Keith Creel, soon to be CP CEO, had this
> to say at yesterday's CP Q4'16 earnings conference
> call when asked by an analyst about his vision for
> CP's future:
>
> "...eventually there is going to be consolidation
> in this industry. I don’t know if it’s going
> to be 2 years, 3 years, 5 years, but it’s
> inevitable. Volume growth is going to come.
> Railways are not going to build. Consolidation
> will occur. And I can certainly see that happening
> within my career..."
>
> Creel also offered in the con call this comment
> re: growth of CP intermodal business:
>
> "... If you look at our franchise, our length of
> haul from Vancouver to Chicago is faster[...] if
> we partner and extend our reach East of
> Mississippi to reach into the Ohio Valley, to
> reach into Detroit, to reach into some of those
> markets. We got to superior out if you partner
> with the right person. So that’s something we
> are looking at from a strategic standpoint for
> this next round of consolidations in ‘18 and
> ‘19..." (note: I made a few edits correcting
> what I believe were call transcription errors).
>
> So maybe it's an effort to more than just Make CSX
> Great Again!  ;-)

This has been one of railroadings biggest problems since WWII.   Instead of concentating on building on their business, they are always chasing the next big magic pill that will save the industry.  Once these railroads run out of railroads to merge with, what's their next magic pill?  Sometimes I think these guys think there job is to preside over a 100 year going out of business sale.

Hunter Harrison, the outgoing chief executive officer of Canadian Pacific Railway Ltd., is teaming up with activist investor Paul Hilal to target CSX Corp., according to a person familiar with the matter.The pair is likely to push to install Harrison in a leadership position at the U.S. railroad, said the person, who asked not to be identified because the matter is private. Hilal worked for years with billionaire hedge fund manager Bill Ackman before starting his own fund.Harrison, 72, is stepping down from Canadian Pacific months ahead of schedule and forfeiting C$118 million ($89 million) in benefits, the company said Wednesday. A separation agreement gives him a “limited waiver” of his non-competition obligations.  Ackman enlisted Harrison about five years ago to help him wage a proxy fight against Canadian Pacific, with the goal of replacing then-CEO Fred Green after years of underperformance. Once installed in mid-2012, Harrison began cutting staff, parking locomotives and running faster trains to improve efficiency and cash flow.CSX surged 15 percent to $42.25 at 7:10 a.m. Thursday in New York premarket trading. The company declined to comment in an e-mailed statement.The CSX effort planned by Harrison and Hilal was reported earlier by the Wall Street Journal.

junctiontower Wrote:
(snip)
>
> This has been one of railroadings biggest problems
> since WWII.   Instead of concentating on
> building on their business, they are always
> chasing the next big magic pill that will save the
> industry.  Once these railroads run out of
> railroads to merge with, what's their next magic
> pill?  Sometimes I think these guys think there
> job is to preside over a 100 year going out of
> business sale.

That's absolutely true, and it's one of the big problems railroads have faced for the last 150 years.

Few customers have meaningful competition, fewer are willing to pay for speedy service. You can waste your skilled labor in a way that would horrify any well run company. Just compare what would happen if United Air posted a schedule that said your flight would leave at 4pm. Or maybe later.  And would arrive on Tuesday morning, or maybe Wednesday sometime.

That's the luxury of running in an industry where everybody wastes assets, people, etc about the same. I'd chalk some of that up to the limited competition.  Railroads don't have the fear that somebody will start up a new railroad and undercut them.  The way that Southwest and Jet Blue did in  the 1990s, and Allegiant, Spirit, etc have in the 2000s.

WrongWayMurphy Wrote:
-------------------------------------------------------
> holiwood Wrote:
> --------------------------------------------------
> -----
> > any thoughts on buying some CSX stock now?
> > hollywood
> > NS B Line MP 74
>
> This stock surge today is based on hype.  If this
> doesn't happen, shares fall back to where they
> were yesterday.
> CSX is a good stock to own, but I would not buy at
> this new inflated price.  Now if you are a buy
> and hold guy
> and can live with the ups and downs and not panic
> sell, this is a good long term stock (as is NS,
> UNP, KSU)
>  
I'm actually sitting here thinking about selling a block of shares in my self directed IRA. Tough to not do it when I'd double my money!

Lackawanna484 Wrote:
-------------------------------------------------------
> junctiontower Wrote:
> (snip)
> >
> > This has been one of railroadings biggest
> problems
> > since WWII.   Instead of concentating on
> > building on their business, they are always
> > chasing the next big magic pill that will save
> the
> > industry.  Once these railroads run out of
> > railroads to merge with, what's their next
> magic
> > pill?  Sometimes I think these guys think
> there
> > job is to preside over a 100 year going out of
> > business sale.
>
> That's absolutely true, and it's one of the big
> problems railroads have faced for the last 150
> years.
>
> Few customers have meaningful competition, fewer
> are willing to pay for speedy service. You can
> waste your skilled labor in a way that would
> horrify any well run company. Just compare what
> would happen if United Air posted a schedule that
> said your flight would leave at 4pm. Or maybe
> later.  And would arrive on Tuesday morning, or
> maybe Wednesday sometime.
>
> That's the luxury of running in an industry where
> everybody wastes assets, people, etc about the
> same. I'd chalk some of that up to the limited
> competition.  Railroads don't have the fear that
> somebody will start up a new railroad and undercut
> them.  The way that Southwest and Jet Blue did
> in  the 1990s, and Allegiant, Spirit, etc have in
> the 2000s.

Until the Staggers act in 1981, it was a low margin business that couldn't attract much capital.  The railroads really did have much choice.

NYSWSD70M Wrote:
-------------------------------------------------------
(snip)
>
> Until the Staggers act in 1981, it was a low
> margin business that couldn't attract much
> capital.  The railroads really did have much
> choice.

Absolutely true, although Staggers was 36 years ago.  Many lifetimes in some industries.

Anschutz realized that the value of Rio Grande and Southern Pacific was in something other than the trains. Same thing with Burlington Resources and UPR, etc.

Any talk of CSX trying to acquire CP are forgetting one important thing ... Canadian law that prohibits foreign companies from taking control of their railways.

Posted from Android

Lackawanna484 Wrote:
-------------------------------------------------------
> NYSWSD70M Wrote:
> --------------------------------------------------
> -----
> (snip)
> >
> > Until the Staggers act in 1981, it was a low
> > margin business that couldn't attract much
> > capital.  The railroads really did have much
> > choice.
>
> Absolutely true, although Staggers was 36 years
> ago.  Many lifetimes in some industries.
>
> Anschutz realized that the value of Rio Grande and
> Southern Pacific was in something other than the
> trains. Same thing with Burlington Resources and
> UPR, etc.

I was referring to the "since World War II" aspect of the post,

NYSWSD70M Wrote:
-------------------------------------------------------
> Lackawanna484 Wrote:
> --------------------------------------------------
> -----
> > NYSWSD70M Wrote:
> >
> --------------------------------------------------
>
> > -----
> > (snip)
> > >
> > > Until the Staggers act in 1981, it was a low
> > > margin business that couldn't attract much
> > > capital.  The railroads really did have much
> > > choice.
> >
> > Absolutely true, although Staggers was 36 years
> > ago.  Many lifetimes in some industries.
> >
> > Anschutz realized that the value of Rio Grande
> and
> > Southern Pacific was in something other than
> the
> > trains. Same thing with Burlington Resources
> and
> > UPR, etc.
>
> I was referring to the "since World War II" aspect
> of the post,

Gotcha. That's why I mentioned those 1980s and 1990s examples.

Lackawanna484 Wrote:
-------------------------------------------------------
> Mantle Ridge has a billion in its war chest, its
> charter allows them to invest the bundle in a
> single deal.  CSX has a market cap (value of all
> stock) of about forty billion, so they'd need to
> get a lot of investors on their side.
>
> CSX operating ratio is about 70%, CP has a rate
> about 12 points less, lower is better.

Lower operatiing ratio is not better if it comes at the cost of the top line.

Much better to have a 90% operating ratio on $20 billion in revenue than a 70% operating ratio on $5 billion in revenue.

Too much focus on operating ratio as opposed to growing the business and pursuing shorthaul and LCL freight is the fetish that continues to shrink the rail industry to insiginificance.

bioyans Wrote:
-------------------------------------------------------
> Any talk of CSX trying to acquire CP are
> forgetting one important thing ... Canadian law
> that prohibits foreign companies from taking
> control of their railways.
>
> Posted from Android

Actually, Canadian officials including the prime minister have the authority to approve a foreign company purchasing a Canadian company; however, I could not see their approval being granted to CSX acquiring CP.
This law notwithstanding, a CSX acqisition of CP is a non-starter for a whole host of reasons.
ALLEN