CSX (CSX) - Get CSX Corporation Report on Tuesday announced plans for the resignation of its chief executive, Michael Ward, in yet another indication that an agreement between the railroad company and activist investor Paul Hilal of Mantle Ridge LP may be close.
Ward and Clarence Gooden, CSX's president, plan to retire by May 31, according to a CSX statement. Fredrik Eliasson, currently chief sales and marketing officer, has been appointed president of Jacksonville, Fla.-based CSX. In addition, according to a local media report, roughly 1,000 management positions are expected to be eliminated at both the company's headquarters and field operations.
The resignations and layoffs come as Mantle Ridge's Hilal may be closing in on a deal to put railroad veteran Hunter Harrison in as CSX's chief executive.
The New York-headquartered insurgent investor, who's been hounding CSX for weeks, offered a compromise proposal late Thursday that he hopes will eliminate the need for a soon-to-be-scheduled shareholder vote on the matter.
And on Tuesday, CSX's statement suggests that a deal between Mantle Ridge and the railroad is coming soon. The railroad said that the appointment of Eliasson as president "is not intended to preempt or otherwise affect any discussions CSX may continue to have with Mr. Hunter Harrison and Mantle Ridge regarding Mr. Harrison becoming the CEO at CSX."
Hilal, an ex-partner at activist fund Pershing Square Capital Management LP, recently joined forces with Harrison, who last month quit his position as CEO of Canadian Pacific Railway (CP) - Get Canadian Pacific Railway Limited Report . The duo, together with Pershing Square's Bill Ackman, are well known for engineering a spectacularly successful insurgency in 2012 that led to Harrison's installation as CEO at Canadian Pacific and a turnaround that helped Canadian Pacific's Toronto-listed shares climb nearly 190% during his tenure.
Mantle Ridge and Harrison have been negotiating with CSX to bring Harrison in as its CEO. However, the two sides had been squabbling over the length of Harrison's contract, his compensation and the number of new dissident directors that would be installed on the railroad giant's board.
In the letter distributed late Thursday, Hilal said if the board could agree to a four-year contract for Harrison, he would agree to a deal that only involved the installation of himself, Harrison and three other directors to what would be a reconstituted 14-person board. Hilal's previous proposal had sought six seats on the CSX board, including seats for himself and Harrison. With his latest proposal, Hilal suggested that the three other directors he is seeking to install on CSX's board don't have any special relationship with him and are independent directors.
Some directors could be good targets for Hilal. The company's current 12-person board has at least six non-executive directors that have served for terms of more than 10 years, according to relationship mapping service BoardEx, a service of TheStreet. For example, CSX directors David Moore Ratcliffe, Edward Joseph Kelly III and Donald James Shepard have all served more than 13 years on the railroad company's board.
Institutional Shareholders Services, meanwhile, gave a red flag to CSX in its QualityScore report, obtained by The Deal, for its board, noting that 55% of its non-executive directors have "lengthy tenures."
Also, late Thursday, CSX said in response it would consider the latest proposal. If the two sides can't reach an agreement, the next step would be for CSX to move ahead with its proposed special shareholder meeting to seek guidance from investors about whether to support Mantle Ridge's proposals. That meeting could take place as soon as April, according to Hilal, or later.
"None of us wants to wait," Hilal said.
With Harrison in charge, as many expect, railroad investors can look for a focus first on operating improvements and buybacks, only later followed by M&A.