Eastern Railroad Discussion > HH demands $300m from csx

https://www.csx.com/index.cfm/investors/news-releases/?rptyr=2012&article=2246114

That's a big lift from Mr Harrison and Mantle Ridge.

FWIW, I don't think CSX should agree. The three big bills would fund a lot of improvements on the line that would increase speed, and provide better customer service. Putting that cash in EHH's pocket doesn't do anything for the company.

The Board clearly sees itself with its back to the wall. They're paid good money to oversee management, set broad policy, and produce returns for the share owners. Reasonable people may agree they haven't done very well at any of those three tasks, hence this wolf at the door. The share owners may decide to toss out the curent board (aka a proxy fight) and put Harrison in any way, but the $300mn is way too much,, IMHO.

Is that per year or over a set time of a contract?

J.

EHH walks into this meeting and essentially says: "I'm coming to take over your railroad with only 5% of common stock ownership, AND I want 300million plus performance bonuses for a 4 year contract, AND I want you to pay me for leaving 84 million on the table at CP that Mantle Ridge Promised me they'd repay me for; AND amend your mandatory Board Retirement age (75) because I'm already older than that!"
Wow, what a deal for CSX...We thought M Ward was overpaid...we had no idea!
That's an ego that needs its own zip code!

Most interesting in this whole maddening press release for me was this little sentence:

"The proposed employment agreement also would require CSX to assume responsibility for non-compete and employee non-solicit obligations owed by Mr. Harrison to Canadian Pacific, which could restrict CSX’s conduct, including the entry into potential mergers."

I suspect this year's shareholder meeting will be even more entertaining than the Proxy fight from a few years ago with the Childrens Fund  group or whoever that was...
I guess I should start preparing for that CP takeover after all!  He want's to do it the hard way, I guess.



Edited 2 time(s). Last edit at 02/14/17 17:32 by DrLoco.

Unfortunetly the finincial institutions that hold a vast majority of the shares will probably hold their noses and vote for this shakedown in order to protect the ten billion plus gain they have at this point. CSX after hours was down a bit over a dollar.  That's nearly a billion drop. Without performance measures tied to compensation, I think some of those buyers have decided to cash out.

Kennard Britton
Bedford, TX


 

Well, all the above have very good points but there is a couple items not yet discussed that are very important and telling.
1. Hunter is refusing to have a pre-employment or turnover his medical records. Remember he has had health problems.
2. Hunter is demanding that he be paid in full, entire life of the contract, if he dies or resigns because of a medical issue. But he won't take a physical.....
3. Hunter is asking for excess of 300 million for four years but is demanding a housing allowance as well! Gee whiz
4. On day one even before he fails or succeeds he is demanding 1% equity award of all of CSX outstanding shares!!!
5. Think about this, just Hunter's salary is 300 million but nobody has yet to mention about all the other executives who would be fired, including board members, I am sure their contracts have takeover and change of command clauses "golden parachutes". This takeover could easily cost 1 billion before even one penny more was made or service improved.

Now that simply just doesn't make sense. Especially considering Mantle Ridgr owns less than 5% of the company

Posted from iPhone



Edited 3 time(s). Last edit at 02/14/17 17:57 by JOHNY5ALIVE.

The math essentially says "is this guy going to increase the value of this company by a non-refundable $300mn plus all kinds of perks" or "are we better off using this money to invest in plant and equipment and people".  The missing element is whether current CSX people or people they could likely hire, are up to getting this job done.

I cashed out about two weeks ago, folded my options but held onto some shares at a nice profit. I may re-enter this fray, based on what tomorrow brings.  The guy's clearly a lunatic with these demands, but he's facing a board that's even more spineless than Fred Green's CP board.

Wow! Hunter Harrison is one ugly looking dude. I don't think I ever looked at his picture before and now I regret that I did. I'll probably have bad dreams tonight...

Jim

Can we say EXTORTION!!
 
Mike

CSX would be better off putting that money into the railroad itself than this TOXIC jackwagons greedy @$$ed hands, but what do I know-im just a lowly railfan that grew up on the CSX Toledo Sub at the end of the Chessie era.  

If CSX goes the route of the Greedy Jackwagon (I could use more profane terms for him here, but I will refrain), It will be just like I said it would be-a fire sale of pretty much everything CSX is-including their diginity at that!  See what thois jackwagon did at CN and CP will be replicated at CSX, and yes I already had a heads up on the NS near takeover from a fellow contact.  HE stated everyone at that time was against it, and I hope everyone at CSX is as well, cause if not-its a short term solution to make a quick buck vs the long term solution to improvements in the railroad making it better.  

Michael Fair
Royal Oak, MI

In my opinion, CSX needs to have money put INTO it to become more profitable, not money taken OUT.   I've said it before and I will say it once more.   I don't think Hunter's way of doing business will be all that successful at CSX.  The numbers might look better for a year or two when the cuts take place, but at some point you have to get down to the business of actually moving freight.  I guess selling off half the company would make that easier, but at that point, are you building up a company or just managing a going out of business sale?  I think the board members should grow a spine and say "if you're going to wreck this company, you're not going to do it on OUR watch.  By bringing in Harrison, you are more or less admitting that you haven't done a good job overseeing the company all these years, so why would you want to stick around anyway?  I doubt most of the board memebers would miss that particular paycheck anyway.  I haven't looked at the makeup of the CSX board lately, but board memberships are generally a perk from one group of rich well connected people to other rich well connected people, and or a retirement perk for former upper management memebers, who are generally quite well off themselves.



Edited 2 time(s). Last edit at 02/15/17 05:29 by junctiontower.

The Wall Street Journal has some additional fill-in to the story this morning.

--Large investors, especially State Street, pushed back on Mantle Ridge's request. Many institutions have been unhappy about other companies paying greenmail or giving seats which diminish the influence of current shareholders

--Mantle Ridge appears to be on the hook to EHH over the $90mn in benefits from Canadian Pacific.  If this deal falls through, Mantle Ridge has to make good on the deal

--CSX has an opportunity to turn tables on Mantle Ridge, as many investors could see a better use for the $300mn than handing it to EHH

--CSX was "near the end" of a search for a replacement for Mike Ward

So I look at NS today opening a little over 122, up from the 75 or so when EHH came knocking.  The institutional investors believe NS management that they could turn things around.  Is there any core of leadership at CSX that could do that?  Does anyone at CSX have the credibility to show a vision to compete against the EHH wave?

Tim

I think the better question is, how much of CSX's problems are based on things they have little control over, like the decline of coal and oil traffic, how much is based on the region they do business in, and whether they could hire or promote somebody other than Harrison that won't cost them hundreds of million of dollars to basically accomplish the same thing.  I for one don't think there is any special skill in what Hunter does that only he posesses, ESPECIALLY at that price....



Edited 1 time(s). Last edit at 02/15/17 06:24 by junctiontower.

So CSX said from the managment side, NO!! and called a shareholders meeting to see what the other investors think
of the $300M man.

Out

Lackawanna484 Wrote:
-------------------------------------------------------
> --CSX was "near the end" of a search for a
> replacement for Mike Ward

I'd be interested in seeing who's on that list. 

I would also be curious to know what changes Harrison would make that aren't already being done or in the planning stages anyway.  To pay someone that amount of ransom with the money basically guaranteed up front, it better be something pretty special...

 



Edited 2 time(s). Last edit at 04/13/17 15:14 by darkcloud.

....I am pretty sure HH did not come up with all that by himself....

Bob

DrLoco Wrote:
-------------------------------------------------------
> EHH walks into this meeting and essentially says:
> "I'm coming to take over your railroad with only
> 5% of common stock ownership, AND I want
> 300million plus performance bonuses for a 4 year
> contract, AND I want you to pay me for leaving 84
> million on the table at CP that Mantle Ridge
> Promised me they'd repay me for; AND amend your
> mandatory Board Retirement age (75) because I'm
> already older than that!"
> Wow, what a deal for CSX...We thought M Ward was
> overpaid...we had no idea!
> That's an ego that needs its own zip code!
>
> Most interesting in this whole maddening press
> release for me was this little sentence:
>
> "The proposed employment agreement also would
> require CSX to assume responsibility for
> non-compete and employee non-solicit obligations
> owed by Mr. Harrison to Canadian Pacific, which
> could restrict CSX’s conduct, including the
> entry into potential mergers."
>
> I suspect this year's shareholder meeting will be
> even more entertaining than the Proxy fight from a
> few years ago with the Childrens Fund  group or
> whoever that was...
> I guess I should start preparing for that CP
> takeover after all!  He want's to do it the hard
> way, I guess.

EHH must be crazy.  If he wants to work for CSX apply like everyone else has to.  
And he can start as a switchman trainee or track laborer at 75% of full wage.  
Who the hell does he think he is?

Lackawanna484 Wrote:
-------------------------------------------------------
> That's a big lift from Mr Harrison and Mantle
> Ridge.
>
> FWIW, I don't think CSX should agree. The three
> big bills would fund a lot of improvements on the
> line that would increase speed, and provide better
> customer service. Putting that cash in EHH's
> pocket doesn't do anything for the company.

Agree completely. A few more thoughts from this observer, who is not a CSX shareholder.

*** CSX's news release was a model of measured, well-lawyered and court-tested prose. Kudos for keeping yourselves out of trouble and not wasting your gunpowder before you need it. To call Mantle Ridge's and EHH's actions and demands "extraordinary" is the height of diplomatic delicacy. Others may chose terms that are very considerably more frank, shocked, angry, and, well, colorful. Since this is a family website, I'll refrain...and I'll bet a lot of us are doing the same. Certain words are swimming in my head......

*** I wish I were a shareholder. My holdings would be so small as to be insignificant. But I would relish the opportunity to speak at the special meeting and vote in way that would, in my minuscule insignificance, help to put this guy in his place. Maybe I'll buy, rich now though the stock is, just for the satisfaction, if I'm within the record date for the meeting. I've done sillier things with my modest means. This guy needs to be stopped.

*** A lot of us on this board have worked our entire careers to bring about real, solid organic growth at our firms. We've weathered the daily grind and hard, hard work of competing fairly and providing value, quality and service for our customers. We've sweated the details and had the jumpy sleepless nights of, "how are we gonna do that?" We've weathered ups and downs, layoffs, downsizings and outsourcings and a lot more, and yet have worked our tails off to bring about a quality product and service -- and by extension the result: profits for our owners, the shareholders (who may well include us in some measure). Pray tell: is EHH's formula and playbook, and his skills, so golden, so magical by comparison that they're worth $300M? Message to board and shareholders: NOT!!!! I'll say it frankly: Nobody is worth that kind of money and those terms in my book. $300 million can buy a lot of key improvements to any property that has a basic, solid core franchise with value (as CSX does -- there's a lot more than coal, boys and girls) to make it better, more competitive, and more profitable.

*** Note to board and shareholders: there are investors out there, including institutional investors, who believe in or may even be obligated to invest for organic growth in the property. How many there are in CSX's shareholder base, and the size of their holdings, I do not know. But if they are a large enough group, you may face shareholder lawsuits if you do this deal with Mantle Ridge and EHH. Remember: you are making a conscious choice not to invest $300M in your property, and spend it instead on an inflated compensation package that may very well not bring about comparable gains. Think long and very, very hard about that decision. Shareholders have sued for far less.

*** I am the son of a veteran industrial distribution manager, who in the course of his career routed many millions of dollars in well-rated traffic over lines that are now part of CSX. My dad and his distribution department colleagues always placed a very high value on quality of service. And they routed traffic based on service. I have not the slightest doubt that, were he still working, that he and his colleagues would be highly skeptical at the least of this deal, and quite possibly strongly opposed. Their view would be solidly based on the service erosion EHH brought about at CP, and the amount of value that would be taken out of potential service improvement investments that would instead go into the pockets of Mantle Ridge and EHH in this deal. And they would make their voices appropriately heard to CSX and other entities. Note to shippers: speak up, now!

*** Memo to railroad labor: TO member Lackawanna484 has on a number of occasions spoken for the idea of negotiating for stock ownership and board representation. I totally agree with him. Your European brothers and sisters in the labor fraternity know a thing or three on that account, and have not only made considerable sums as a result, but have key management board seats (albeit in a different structure across the Pond) that would make something like EHH and Mantle Ridge are trying at least a bit more difficult, and perhaps very difficult.

Think about this: for all of the various mergers that brought together this present CSX system, what would be the potential value of those holdings in both dollars and ownership position sufficient for board seats? All of those deals weren't done to lose money. They aggregated and could, and probably did, concentrate ownership value -- that's part of why such deals are done. What would all of those deals have done for your stake if it were in a labor stock ownership trust with enough of a position to gain a board seat? Or if that were blocked legally or otherwise, think of the aggregate value of all of those individual shares that you owned voted together at the special stockholders meeting? Together with a couple of big institutions (no, they do not all like people like EHH and his methods -- there is more than one way to be a fiduciary) you could have enough votes to at least sway the board to a degree, if not shut him down. If you mostly held and reinvested through all of the mergers that made the present CSX through the years, would you have more than Mantle's 5% stake? I'm not the analyst to do those numbers (Lackawanna484 -- are you game?), but I'd make a fair bet for a 5% stake, at least. A voice equal to his, and that would represent the company's labor force -- the people work make the enterprise work everyday -- would have to be heard and given substantial credibility by the board purely from a shareholder equality perspective.

Yup, right now, my railroad management friends are jumping up and down and waving their hands madly. What is this wingnut saying? I stand by my words. Labor, your pennies look the same as anyone else's, alone or in abundance. Don't forget that.

First cometh Children's Fund (what????? a happy-talk misnomer if there ever was one) and now Mantle Ridge and EHH. Learned your lesson yet? Memo for your next contract negotiation....before it's too late (assuming EHH is sent packing). Memo also to labor at UP, NS and others (sorry BNSF, you'll have to have a chat with Uncle Warren). Think about this very, very long and hard before the next contract. History does have something of a way of repeating itself....especially when there is coin of the realm in abundance at stake.

In closing, best of luck, CSX. Do all you can to fight off this guy and send him to play with his ponies, and his cronies packing.......forever. You'll be ever so glad that you did. And so will a lot of other people.

MC
Muskegon, Michigan



Edited 5 time(s). Last edit at 02/15/17 21:05 by ironmtn.