It looks like Total War from here

Allison Martel, who covers railroads for Reuters, flagged for me some comments made by Canadian Pacific chief executive Hunter Harrison this week at a J.P. Morgan conference in New York City. As he has countless times, he answered a question to say that mergers between Class I railroads will happen in years to come, like it or not. As he sees it, just about any combination would work unless it involved direct competitors in the same region.

Heard all that from him before? Yup. But then he went on to say this:

“I can’t give you all my insight here, but I’m telling you there's something going on out there right now. And I'm not suggesting consolidation, but I’m telling you, there's just a lot of things that, two and two don't add up to four right now if you look at what's happening at some headquarters of railroads and stuff. And if you look real deep some of you will be smart enough to see and understand some of it.”

What on earth is he saying? The only way to make sense of this is to take Hunter at his word. First, he is talking in the context of railroad consolidation. Second, there are things happening beneath the sheets we can’t see. Okay, got that. Third, he’s not referring to outright mergers. Hmmm. Then what is he referring to?

It helps if you loop back in his conversation with Morgan’s transport analyst and take in this: “When you sit down and talk to someone about the opportunities [for mergers], the last person they consider is the shareholder. Who’s going to be CEO? Where will be the headquarters? Who will get credit? It is amazing to me that boards of directors and shareholders tolerate this. But I’m seeing some activism start. Some organizations with large investments are going to start holding CEOs and management teams and boards accountable. It is long overdue.”

I think I get his drift. As you know, Bill Ackman of Pershing Capital Management in 2012 burst into Canadian Pacific’s cozy Old Boys Club, broke all the china, and ousted its CEO and top directors in a doozey of a proxy fight. I recall reading that Pershing had a spectacular year in 2014, which means that Ackman has a bulging war chest.

I think he’s got his sights on CSX (most likely) or Norfolk Southern (possibly). I must acknowledge my prejudice: In the February issue of Trains I predicted that CSX was Ackman’s next target; so perhaps I am too eager to believe I was right.

That stuff Hunter says is going on is probably this: On February 11, CSX named Oscar Munoz, once chief financial officer and then chief operations officer, as its president, with Michael Ward remaining as chief executive. And on Monday NS said that James Squires would succeed Wick Moorman as chief executive, Wick remaining as executive chairman. Moorman is several years short of 65, the mandatory retirement age at NS.

I think both companies are strapping on the body armor and getting ready for Total War.—Fred W. Frailey