The Orr War

Railroad Weekly March 25, 2024

courtesy: Jerry Huddleston

Inside This Issue   

·   The Orr War: Norfolk Southern Hires a New COO

·   Orr Loser: Ancora says NS Hire Makes No Sense  

·   The Thrilla’ in Atlanta: The May 9^th Fight, Blue Vs. White

·   Thunder Construction: Key Canadian Grain Port Getting Rail Upgrades

·   California Screaming: RRs Loudly Voice Qualms About Loco Proposal

·   Crude Awakening: U.S. Oil Output and Exports Hit Record Levels  

·   Customer Nervous: FreightCar America Says Buyers Getting Cautious

·   Hike’s Peak: Fed Seems Ready to Lower Rates… But Not Just Yet

Track Talk

“An activist hedge fund, Ancora Alternatives LLC (“Ancora”), is attempting to take control of your company. They want to replace a majority of the board. They want to appoint an unproven CEO candidate with no railroad experience and a controversial COO candidate. This agenda would introduce significant risks to the business and disrupt our path to deliver long-term sustainable shareholder value.”

-Norfolk Southern, in a letter to shareholders

“Based on Norfolk Southern’s repeated acts of desperation and factually inaccurate attacks on our people, it seems the Board and Mr. Shaw will do and say anything to try to stay in place.”

      -statement from Ancora, responding to NS’s shareholder letter

War Update: Norfolk Southern Versus Ancora

·   The date is now set: May 9^th. That’s when Norfolk Southern will hold its annual shareholders meeting. Typically, these are dull affairs. This year though, the company is striving to fend off a shareholder revolt. By now you know the background. In November, Ancora—an Ohio-based investment fund—approached NS about its desire to propose new directors to the company’s Board. Its activities became public on January 31^st, when the Wall Street Journal reported the firm’s plan to take control of the NS Board and install a new management team, including a new CEO to replace Alan Shaw. At that point, Ancora had amassed an NS ownership stake worth roughly $1b. (The company is currently worth about $57b). Ancora repeatedly made clear, as it did on Feb. 13^th, that “unless the Board would agree to a CEO change, there was no opportunity to reach a mutually agreed resolution.” NS made it equally clear that it would consider new Board members but also, that it “fully supports Mr. Shaw and the management team and would not agree to a management change.”

·   On Feb. 21^st, Ancora’s president James Chadwick, during a CNBC interview, went public with the coup attempt, blasting the company’s financial performance, its management team, and its safety record. NS immediately counterpunched with a statement denouncing Ancora’s claims and urging shareholders to ignore them. The subsequent back-and-forth featured, let’s just say, precious few moments of diplomatic nicety. An angry baseball manager arguing with an umpire would sound less heated.

·   Now fast forward to last Wednesday (March 20^th). With resistance building to Ancora’s attack—from employees, regulators, politicians, shippers, etc.—NS went on the offensive. It announced the hiring of a new chief operating officer—John Orr—described as a “proven leader in applying scheduled railroading principles to drive sustainable long-term value creation.” Orr is yet another child of the Hunter Harrison revolution, having worked for the legendary PSR pioneer at Canadian National. More recently, Orr helped apply scheduled railroading techniques at Kansas City Southern, and subsequently CPKC following Canadian Pacific’s takeover. For much of this year, Orr was in Mexico, troubleshooting CPKC’s operations there. He now replaces Paul Duncan, who’s leaving NS.

·   Note: NS did have to compensate CPKC for poaching Orr, given his non-compete clause. NS agreed to pay it $25m. In addition, NS will concede “certain rights” related to the Meridian Speedway joint venture the two railroads jointly operate. In 2006, NS agreed to invest $300m in KCS’s trackage between Meridian, Mississippi, and Shreveport, Louisiana, boosting capacity and increasing speeds. For its money, NS got a 30% stake in a newly-formed joint venture. It also got a lane to rapidly move goods between the U.S. southeast and the U.S. southwest, not to mention Mexico. At the time, KCS was eager to develop more east-west traffic, wary of its overly heavy north-south exposure. For the new CPKC, however, the Meridian Speedway will soon lose relevance because of a new east-west speedway it’s establishing with CSX in Alabama. CPKC said in a statement that NS will provide “certain operational and commercial considerations related to the Meridian Speedway and the Meridian Terminal which will expand competition and unlock additional value related to CPKC’s proposed Meridian & Bigbee Railroad (MNBR) acquisition.” The MNBR transaction is linked with what it’s doing with CSX. NS also agreed to refrain from recruiting a list of other top CPKC executives. And it told the STB it’s withdrawing any past objections to the MNBR transaction.

·   Ancora accepted the Orr hiring with joy and happiness. Just kidding. In another ferocious counterattack, the investment firm angrily belittled Orr’s credentials, alleging he lacked any experience at an eastern railroad and held a role at CPKC that was recently eliminated. Besides, Ancora, scoffed, most analysts and investors have