CSX may be at a crossroads in the wake of the merger announcement of two of its Class I railroad rivals.
Activist investor Ancora Holdings, which launched a proxy fight against Norfolk Southern that sparked a board overhaul and resulted in the ousting of its then-chair, could use its sway to push CSX in a new direction. One such option may be a potential merger.
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In a Wednesday interview with CNBC, Ancora Alternatives president James Chadwick said that the hedge fund has been a “growing shareholder” in CSX, although the asset management firm has not disclosed its stake.
“[CSX] has to make a decision of whether it wants to find a merger partner or whether it’s going to have to go retool management,” Chadwick said.
When asked if Ancora would consider a campaign against CSX management, Chadwick said “I think that’ll be up to CSX, ultimately.”
Chadwick denied that there had been contact with CSX regarding a possible activist push yet, but said “Whatever actions they make from here will dictate what we do.”
In a late July earnings call, CSX CEO Joseph Hinrichs did not rule out the possibility of a merger or acquisition, saying the company was “always open to anything” to deliver shareholder value.
Ancora’s potential move could be summed up by Chadwick’s criticism that the company is “underperforming,” particularly in operating ratio.
Operating ratio is a top performance metric monitored by analysts, representing operating costs divided by total revenue. The data point typically reflects a railroad’s ability to manage its expenses and drive profits, and is expressed as a percentage. The lower the percentage, the better the railroad is at generating profits.
Currently, CSX has the worst operating ratio of the Class I railroads at 64.1 percent. In the quarter prior to Hinrichs’ start as CEO and president in September 2022, the railroad had a 55.4 percent operating ratio.
The conclusion of Ancora’s proxy fight with Norfolk Southern last year also involved the operating ratio metric. At the time, the railroad said it planned to reach a sub-60 percent operating ratio within three to four years.
Whether Ancora’s overtures have gotten to CSX or not, it appears there may be more movement on the railroad’s part to enact some level of change.
On Thursday, a Bloomberg report said CSX is working with Goldman Sachs as the railroad potentially explores its options. The railroad spoke with the bank about the possibilities of a merger, the report said.
