Jan 19, 2017
'The thrill of the kill’: Rail industry speculates on Harrison’s future
Hunter Harrison’s early departure from CP Rail is triggering industry-wide speculation about where he lands next, and what his end-game could be.
Harrison, who left his post as CEO of CP Rail Wednesday, is in advanced talks to team up with former Pershing Square Capital partner Paul Hilal to acquire an activist stake in rival railroad CSX Corp, according to a person familiar with the matter, as reported by Reuters.
Hilal, who had left William Ackman's Pershing Square Capital Management LP last year, has raised more than US$1 billion to acquire a stake in CSX, with investors locked up for five years, the person said.
“He is certainly one heck of an operator. And if [CSX] is where he goes you probably had better grab that handrail and hold on because there could be some fun in that company ahead," Ross Healy, Chairman, Strategic Analysis Corporation told BNN in an interview.
CSX, Hilal, and Harrison could not be immediately reached for comment.
Harrison left CP Rail in a surprise move that sees the longtime railroader forfeit $118 million in benefits. Harrison’s long-time protégé Keith Creel will take the top job, effective January 31, an earlier transfer of power than the July 1, 2017 handover outlined last July, as Harrison appears to eye another Class 1 railway job.
The split comes after Harrison asked to discuss possible modifications to his contract, according to a CP statement, one which would alter the non-compete clause in his contract. Harrison characterized the departure as “bittersweet,” and CP has agreed to a limited waiver of the non-compete clause. Harrison’s previously agreed upon consulting arrangement, which was due to run for three years, has also been cancelled.
Morningstar equity research analyst Keith Schoonmaker told BNN the earlier transfer of power likely won’t have any material effect on CP’s operations, as the company has eagerly adopted Harrison’s precision railroading model.
“Creel has been the right-hand man, the protégé to Hunter Harrison for 20 years’” he said. “He’s been the chief operating officer of both of the large Canadian railroads, so he’s more than competent to assume the role. Creel doesn’t need consulting from Harrison or anyone else after running this scheduled railroading plan for more than 20 years.”
Schoonmaker said, while Harrison’s departure may not alter the fortunes of CP, it could help one of the U.S. railways that have struggled to drive their operating ratios, a measure of costs as a percentage of revenue, as low as their Canadian counterparts.
“The Eastern U.S. rails still lag behind the Class 1 average … and the Easterns perhaps could benefit from Harrison,” Schoonmaker said. “If we were making a wager about one person in the world who would want to improve the operating ratio at a railroad, it’s hard to imagine a better bet than Hunter Harrison.”
Avenue Investment portfolio manager Bryden Teich echoed Schoonmaker’s sentiment, telling BNN Harrison’s move to leave a significant payout on the table for the chance to run another railroad indicates he’s still looking for new challenges in what was considered the twilight of his career.
“Turning around railroads is in his blood. It’s just in his nature to really want to turn railroads around,” Teich said. “The $118 million being left on the table is a huge amount of money, and I think that as much as a CEO would say that they don’t do it for the money, I don’t think Hunter Harrison definitely does it for the money, I think it’s in his nature to want to find railroads to turn them around: it’s just what he does.”
Harrison was paid nearly $9 million in base salary as CP’s chief executive between 2012 and 2015, which Portfolio Management Corp. Managing Director Norman Levine told BNN frees Harrison from having to pursue a big payday.
“It’s clearly not about the money. He’s got tons of money. This is [about] the challenge. … It’s really the thrill of the kill.”
With files from Reuters
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