Western Railroad Discussion > Fund Manager Engine #1 at Union Pacific

The activist investment manager Engine #1 has taken a position at  Union Pacific About 8% of the manager's public fund NETZ is invested in UNP, about $12 million. That's not even a rounding error for a firm the size of Union Pacific. Engine #1 is committed to making companies more efficient, more disciplined, and more aware of their impact on the environment.

What makes this interesting to me is Engine #1's success in a recent proxy battle against Exxon, a large, established, blue chip firm not unlike Union Pacific.  In Exxon's case, they won three seats on Exxon's board, and have already forced major changes on the firm. Engine #1 owns about 0.015% of Exxon.

It should be interesting to see if Engine #1 and its allies, which include several huge state pension funds, force discipline on Union Pacific's new management.  While Soroban Capital Management has received the spotlight for bringing Jim Vena aboard, it's likely that Engine #1 and its allies are pushing for changes behind the scenes which will benefit the environment and the share owners.  I don't have a sense of how or if Soroban and Engine collaborated on removing Mr Fritz, but I suspect both managers want to see changes at Union Pacific.

This isn't a recommendation to buy or sell Union Pacific. I'm putting this out to show how sometimes a very minor player can cause some major changes when things line up. There's no doubt Union Pacific can become a major player in improving climate efficiency. 

Lackawanna484 Wrote:
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 I'm putting this out to show how
> sometimes a very minor player can cause some major
> changes when things line up. There's no doubt
> Union Pacific can become a major player in
> improving climate efficiency. 

Well, it is an interesting development in how it played out as you mentioned, it's also good to note several things about what happened that may or may not play out with UP. First, Exxon was losing big money when Engine #1 started it's proxy fight, and while no doubt having good intentions, to be able to successfully complete this battle they had to enlist the help of large institutional investors to make it work, and they appealed to them not so much on environmental responsibility but more on profitability to get the big boys to join. Without that base motive I doubt the others would've joined solely for climate change. And the founder of Engine #1 itself has investments and ownership interests in several "dirty" industries and businesses, to me watering down its message. Further still, many experts believe that while these board installments seem impressive on the surface, actually carrying out an alternative-energy strategy at the biggest legacy oil producer (and climate change denier) is still very sketchy and will likely not result in the major changes that are really needed to have real impact on reducing their carbon footprint. If that turns out to be the way their investment in Exxon really plays out, then expect less real change in the operating policies of UP, which doesn't have nearly the potential of Exxon to make a dent in climate change, and UP is currently very profitable already so what changes would help with that? Since profit is still the main motivation for any investment house, even if they call themselves "impact-focused" for politically correct reasons, why would any group join a very profitable outfit like UP to insist on being less profitable, since all climate change initiatives (at least right now) are reducing margins to transition to the future (or seeking government help and strings attached)? I personally don't see battery-powered locos on the UP anytime soon. UP probably thinks they are already major players in the transition to the future (more RR use) just staying as is for now while all the heavy lifting belongs to other larger, more filthy aspects of transportation (trucking) in general and the economy as a whole (coal and steel). Your mileage may vary...

JG



Edited 1 time(s). Last edit at 09/16/23 09:53 by jgilmore.

blatant example of Environmental, social, and corporate governance (ESG). When multinationals like vanguard/blackrock control major portions of client companies, stuff like this is how they accomplish their agenda.

It's why normal-behaving entities (i.e. companies acting in their own self interest) suddenly do things out of character - Bud Light, Target, Kohls, Disney, etc - and suffer consequences they should have known would harm them, but they do them anyway.

Their belief that their agenda can be forced onto the public is an opportunity to see their skewed vision of reality. Union Pacific is only doing what their majority ownership is commanding and we should expect more of this, much to the detriment of their public service, equipment and future viablility.

We will likely know in the next few months how Mr Vena and his team intend to play this out. One of the first changes I'd look for is a reinvigorated sales operation, and trying to meet specific targets in various intermodal service lanes. With "good enough" service UP should be able to show significant traffic gains.

Or, we may be in one of those "meet the new boss, same as the old boss" reruns...

dragoon Wrote:
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> When multinationals like vanguard/blackrock
> control major portions of client companies,
> stuff like this is how they accomplish their agenda.

FYI, one of Engine #1's founding members came over from BlackRock.

> It's why normal-behaving entities (i.e. companies
> acting in their own self interest) suddenly do
> things out of character - Bud Light, Target,
> Kohls, Disney, etc - and suffer consequences they
> should have known would harm them, but they do
> them anyway.

Always ask the question, "cui bono?"

Better analogy would be the recent infamous crypto scandal involving SBF. Based on what you've been posting, you should know what SBF stands for, as I won't spell it out to avoid unneeded rants.

Anyway, the lesson for TO members is that ESG and other "feel good agenda" is a marketing tool to collect funds from the wealthy suckers who don't know any better (and out of touch with the rest of us). The blind followers of the agenda are just being compliant to BlackRock, Vanguard, StateStreet, and others who are still trying to get people to "invest" in their funds - need to prop them up by suckering new money to "participate." That should answer one "cui bono?" question.

With Bud Light, the incompetence of Anheuser-Busch's VP of Marketing was exposed when she was too busy promoting the social agenda (she probably didn't know why, except that it "felt" good), instead of understanding who her customers were (those who buy the beer to help the business in the first place). The beer drinkers could care less about "investing" in funds for social justice reasons.

I don't think Engine #1 has malicious intentions like SBF ("I'm altruistic, therefore, invest in my exchange"), or naive like Anheuser-Busch, but they have zero experience on knowing how a railroad operates. So I expect little or no impact on UP's revenue growth from Engine #1's alleged "activist" participation.

Another "cui bono" is the obvious weakness of UNP stock created by Lance Fritz cashing in by selling his UNP shares. Engine #1's stake is simply taking advantage of it in the short term.... plus collect the dividends every quarter while they own it. I ignore their "environmental" intentions... which is designed to sucker "feel good" people to spend money on their fund.

If Vena lets his reports run the railroad instead of meddling per pressures from so-called "activist investors," Union Pacific will do just fine, growth or no growth.