Unlocking Value At CSX: Responding to Requests from Mantle Ridge
(4 pages of text)
Case (Pub Mat)
In 2017, hedge fund Mantle Ridge acquired less than 5 per cent of the stock of CSX Corporation (CSX) and made demands for board representation as well as the installation of a new chief executive officer (CEO) of CSX. This new CEO had abruptly resigned from Canadian Pacific (CP) and joined forces with Mantle Ridge at the time the fund announced its activist position in CSX. On February 14, 2017, CSX management announced a special meeting and shareholders’ vote to respond to Mantle Ridge’s demands, which included a compensation package for this new CEO, estimated at $300 million. In light of the improvements at CP, could the same model be implemented successfully at CSX? If so, was the proposed compensation package for an incoming CEO justified? The chief investment officer of a large U.S. pension fund, has been asked to vote at the upcoming meeting and faces two main questions: Should she vote in favour of approving the package? Alternatively, should she sell CSX stock now?
This case has been designed for use in finance courses at both undergraduate and graduate levels as well as in strategy courses to discuss corporate governance. After completion of this case, students will be able to:
- examine how value might be unlocked when a company changes its strategic direction with a new, cost-cutting CEO;
- analyze CP’s operating ratios during Harrison’s five-year tenure at that company and the value added to Pershing Square’s investors and CP’s other shareholders;
- compare CP and CSX from a financial and valuation perspective—comparing profitability, efficiency, and valuation metrics; and
- examine secondary issues, including the role of activist investors and—from a corporate governance perspective—the question of when it is appropriate for management to call a special meeting of shareholders to seek guidance related to compensation issues.
Transportation and Warehousing
Canada; United States, Large, 2017
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