Last month Hunter Harrison stepped down from his position as CEO of Canadian Pacific Railway (CP) to join Mantle Ridge, a newly formed activist fund led by Paul Hilal.
An ex-partner at activist fund Pershing Square Capital Management, Hilal mostly engineered a spectacularly successful insurgency in 2012 at CP that installed Harrison as CEO, orchestrating a turnaround there that led CP's Toronto-based shares to climb nearly 190% in his tenure.
Together Hilal and Harrison are targeting CSX, which on Tuesday evening said it was calling a special shareholder meeting to seek guidance from investors about whether to support Mantle Ridge's proposals. The activist fund wants six seats on a reconstituted 14-person CSX board and Harrison in as CEO. Also, the activists want three incumbent directors to resign at the 2017 annual meeting and one more to step down in 2018.
CSX's counteroffer: a job for Harrison as CEO and director, and board positions for Hilal and three other "mutually agreed" upon directors. The two sides appear to be squabbling over Harrison's compensation and how many board seats Mantle Ridge would have control over.
Nevertheless, it looks increasingly likely that Harrison will become the next CEO at the Jacksonville, Fla.-based railroad. If a majority of shareholders back Mantle Ridge's proposals, look for CSX to abide or face a change-of-control proxy contest.
Jeffrey Kauffman, an analyst at Aegis Capital and a 27-year-veteran of covering the rail sector, argues that CSX may not have a lot of leverage when it comes to negotiations with Harrison and Mantle Ridge, especially since all the railroad's directors are up for election annually. "If Mantle Ridge were to propose its own slate of directors to change the entire board then shareholders would most likely support them," Kauffman said.