Top execs step down at CSX, paving the way for Harrison's takeover

Dive Brief:

CSX Chairman and CEO Michael Ward and President Clarence Gooden will both retire May 31, DC Velocity reported Tuesday. CSX's current Chief Sales and Marketing Officer Fredrik Eliasson was named president.
The retirement of Ward and Gooden appear to clear a path for railway executive Hunter Harrison to take the reins of the company. CSX stated its announcements this week do not "preempt or otherwise affect any discussions" about Harrison, per a press release.
CSX and Mantle Ridge are continuing conversations, but various outlets report the talks have stalled over the proposed number of seats and a compensation package for Harrison. Harrison, who left Canada Pacific to pursue a position within CSX, is known for his implementation of precision railroading in Canada, according to The Wall Street Journal.

Dive Insight:

The takeover talks have sent CSX stocks soaring in the expectation of the 3-time railroad magnate's leadership. Since January 3, stocks have risen by 35%, with the largest spike (23%) occurring at the announcement of Harrison's intention mid-January.

If expectations are high it is not because CSX has had a spectacular year meriting a new age of leadership. Quite the opposite, in fact. Railroads have been suffering from a long recession aggravated by a strong U.S. dollar and a decrease in coal shipments. The rail carrier announced a year-over-year decrease in volume and earnings in 2016. In addition, First Coast News reports CSX will layoff 1,000 management positions this year.

But, that is precisely the model Harrison is used to taking over. The Wall Street Journal reports Harrison reduced the workforce in Canada Pacific from 19,500 to 11,700, and grounded or sidelined various rail cars in an attempt to improve the bottom line on a precision railroading strategy, or the targeted use of locomotives to allow for more punctual deliveries.

However, skeptics argue such strategies may not work in the U.S. CSX, a major Class I railroad, manages a wide network with often interchanging routes. In addition, the federal regulatory environment also would prove challenging for precision railroading, as passenger trains currently hold "preference," or right of way, and often hamper freight trains' on-time performance. With CSX's East Coast dominance, the lack of right of way is a consistent challenge.

Meanwhile, Harrison has offered few details about what his specific plans for CSX would be, relying on his railroad celebrity status to carry the weight of the takeover bid. Regardless, the past month appears to signal a new era for the Class I railroad.