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Ancora launches takeover bid for Norfolk Southern

ANCORA Holdings, an Ohio-based investor group, has launched a formal bid to take over Norfolk Southern (NS), which says is now the worst-performing of the US Class 1 freight railways. According to Ancora, NS is “issue-plagued” and its response to the East Palestine derailment on February 3 2023 is a microcosm of the company’s “failed strategy, insufficient accountability and lack of oversight of poor leadership.”

The group recently acquired an equity stake in NS worth over $US 1bn. It is now proposing eight new independent directors who would appoint “as expeditiously as possible” a new CEO to replace Mr Alan Shaw at the head of NS, as well as a new chief operating officer (COO). Ancora is proposing former United Parcel Service (UPS) COO, Mr James Barber, as the new CEO and Mr Jamie Boychuk as COO. Boychuk was executive vice-president, operations, at fellow Class 1 CSX until August 4 2023.

According to Ancora, both Barber and Boychuck are “proven leaders with operational and railroad industry expertise necessary to move NS forward.” The investor group says that since Shaw became NS CEO in May 2022, the company’s position at the bottom of the Class 1 table has been solidified by leadership delivering “industry-worst operating results” and sustained share price underperformance, as well as a “tone-deaf response” to the East Palestine.

Ancora points to the NS operating ratio – the proportion of income that goes to meet expenses – that was the worst amongst the Class 1s in 2023, standing at 67.4% compared with the average of 61.1% and 59.6% at CSX. The total shareholder returns delivered by NS are 10.9% lower than the Class 1 median and 18% lower than CSX, according to Ancora.

“The bottom line is that it is time to actually move NS forward,” according to Ancora. It says that its director candidates and proposed senior management team have the experience and strategy required to turn the company into “a safer, more sustainable railroad that is growing profitably while also yielding more stability for customers and employees.”

NS response

In response, NS says that its board will continue its review of Ancora’s proposed board candidates, and will present its formal recommendation in the company’s definitive proxy statement that will be filed with the Securities and Exchange Commission and sent to all shareholders eligible to vote at the company’s 2024 annual meeting. The date of this meeting has not yet been announced.

“Board refreshment is integral to effective corporate governance, and we seek to ensure that our directors have the appropriate skills and experience to oversee our strategy and its execution,” NS says.

“The board continues to oversee management’s successful execution of our strategy to balance safe and reliable service, continuous productivity improvement, and the pursuit of smart, sustainable growth.”

NS says that it has dramatically improved its safety metrics and product offering in each of the past two years, delivering record annual revenue in 2022. Volumes of intermodal traffic, “our most service-sensitive business,” grew by 5% year-on-year in the third quarter of 2024.

“While there is more work to do to recover from the short-term impacts to margins, customers are seeing our progress,” NS says. “They recognise our commitment to delivering consistent, reliable service and are awarding us new business.”

“We are proud of our response in East Palestine and the relationships we’ve built throughout the community,” the company says. “Norfolk Southern is making it right, delivering on our promises to fully and safely remediate the site and ensuring East Palestine and the surrounding communities thrive for the long-term.”

NS says that it is continuing to implement its six-point safety plan, installing digital train inspection portals, and incorporating feedback from union representatives. It also points to a “dramatic” 42% year-on-year reduction in its mainline accident rate in 2023.

By: William Vantuono