As more signs point to a more favorable opinion on the pending Union Pacific-Norfolk Southern merger in Washington, one activist investor is prodding competitor CSX to consolidate with a fellow railroad of its own.
In a letter to the CSX board of directors, minority shareholder Ancora Holdings advised the Class I rail company to hire third-party advisors to find a possible merger partner or replace CEO Joe Hinrichs.
The hedge fund insinuated that it would launch a proxy fight against CSX if the board chose neither option.
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Ancora Holdings chairman and CEO Fredrick DiSanto and Ancora Alternatives president James Chadwick penned the letter on Aug. 6, days after Chadwick appeared on CNBC and telegraphed a possible intent to enforce change at CSX. At the time, Chadwick called out the company for “underperforming,” particularly in important industry metrics like operating ratio.
“Time is of the essence because inaction risks are impairing the long-term value of CSX,” the Ancora letter wrote. “Once Norfolk Southern and Union Pacific start operating as a unified transcontinental railroad, no railroad has more to lose than CSX.”
The asset management firm is no stranger to being in this position, having started a proxy fight at Norfolk Southern last year. That board battle resulted in the ouster of then-chair Amy Miles and the election of three Ancora-backed directors.
Another hedge fund, Toms Capital Investment Management, has requested to meet with the CSX board, according to Reuters. The report gave no detail of what such a meeting would be about, but the firm recently purchased 5.6 million shares in the railroad in the second quarter.
CSX has been open to potential ownership changes, with Hinrichs saying the company was “always open to anything” to bolster shareholder value during a July earnings call.
“We’ve said it before, and we’ll say it again: CSX welcomes all opportunities for us to enhance value for our shareholders,” a CSX spokesperson said. “CSX appreciates the input of its shareholders and engages regularly with them as it executes on its goals to drive value through profitable growth and industry leading customer service.”
Ancora called it “imperative” that CSX pursues discussions with both BNSF Railway, the railroad most often tied to a possible merger, as well as Canadian Pacific Kansas City (CPKC).
“The reality is that BNSF is a cash buyer that would bring a highly disciplined approach to any negotiations, rendering CSX in a vulnerable position if it does not have alternative parties to speak with,” said the note. “We believe CPKC, under the leadership of Keith Creel, represents a compelling partner for CSX as it looks to compete in a new railroading environment.”
The hedge fund acknowledged that the approval process would be more difficult for a CPKC deal since they are now headquartered in Canada, but noted that that it could be structured as a reverse merger under which CSX acquires CPKC.
Ancora also said that the railroad regulatory body Surface Transportation Board (STB) would have an easier time reviewing two mergers at once.
“They will be able to compare competitive considerations and the impact on customers on a side-by-side basis to determine how the respective combinations benefit all stakeholders,” DiSanto and Chadwick wrote.
To close the letter, the Ancora execs suggested the hedge fund would campaign for former CSX executive vice president of operations Jamie Boychuck, or someone with similar credentials, if it were to launch a proxy fight. Ancora had previously floated Boychuck as a C-suite contender during its Norfolk Southern proxy fight last year, but that push was unsuccessful.
With the future of CSX up in the air, the $85 billion Union Pacific-Norfolk Southern merger appears to have a backer within the Trump administration.
Commerce Secretary Howard Lutnick said the industry’s current system of interchanges, where carloads get transferred from one railroad to another in areas like Chicago, Memphis and St. Louis, “should be made more efficient.”
“Whether that should be through merger or in any other way, I’ll leave that to the regulators and the overseers,” Lutnick said. “That’s the proper way to do that for that kind of acquisition. But the concept of making it more efficient to get across the country is obviously something that we applaud…We need to have a more efficient rail system for cross-continental rail.”
When pressed on whether the Trump administration would get involved, Lutnick said “that’s not my place to weigh in” as the STB prepares to review the agreement.
The companies are targeting an early-2027 closing date.
