Unlocking Value at CSX: Responding to Requests from Mantle Ridge
In 2017, hedge fund Mantle Ridge acquired less than 5 per cent of the stock of CSX Corporation (CSX) and made demands for board representation as well as the installation of a new chief executive officer (CEO) of CSX. This new CEO had abruptly resigned from Canadian Pacific (CP) and joined forces with Mantle Ridge at the time the fund announced its activist position in CSX. On February 14, 2017, CSX management announced a special meeting and shareholders' vote to respond to Mantle Ridge's demands, which included a compensation package for this new CEO, estimated at $300 million. In light of the improvements at CP, could the same model be implemented successfully at CSX? If so, was the proposed compensation package for an incoming CEO justified? The chief investment officer of a large U.S. pension fund, has been asked to vote at the upcoming meeting and faces two main questions: Should she vote in favour of approving the package? Alternatively, should she sell CSX stock now?