CSX's kettle boils over

Posted by Fred Frailey
on Sunday, May 3, 2015

Activist investor Bill Ackman makes a presentation late Monday afternoon at the Ira Sohn Investment Conference in New York, and the buzz going around is that he may reveal a major investment in CSX. That would not surprise me in the least. Ackman's modus operandi is to identify underperforming companies, suggest ways management can do a better job and then go on the attack if he is met by a cold shoulder.

I am really interested in learning two things. First, what's his beef with present management? You may recall that when Ackman revealed his investment in Canadian Pacific in 2011 he unfurled a damning indictment of CP chief executive Fred Green's stewardship. Ackman subsequently nominated and got elected his own slate of CP directors and that was the end of Fred Green's rein. Think what you will of CSX chief Michael Ward, but his track record is a heck of a lot better. So if CSX is really Ackman's target, he had better make a strong case. But can he?

The second thing we should look for is simply this: what is his plan to advance the CSX share price? Combine CSX with CP, which CP chief executive Hunter Harrison proposed last October? Keep CSX independent but bring in a change agent of the likes of Harrison to shake things up? Would Harrison, who has run three major North American railroads, be willing to take over a fourth? I suspect so, because within the year he is expected to turn over CP management to his protege Keith Creel, currently the railroad's president.

Of course it may be that Ackman has a totally different investment idea to expound. (His two picks at last year's Sohn conference, Fannie Mae and Freddie Mac, subsequently fell 30+ percent in price.) But if not Ackman, who then has been gobbling up CSX shares in recent weeks?--Fred W. Frailey

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