Ancora Holdings, a prolific activist investor in transports, has once again set its sights on an underperforming Class I railroad and its CEO. In a move that mirrored its successful intervention with Norfolk Southern, Ancora has penned a pointed letter to the board of directors at CSX Corporation, urging immediate action to explore merger options.
If the Surface Transportation Board allows Union Pacific to acquire Norfolk Southern, then CSX’s primary competitor will be able to offer seamless coast-to-coast service, and CSX won’t. If CSX assumes that a merger with BNSF will come, and it doesn’t actively pursue other options (like a Canadian rail), Ancora argued, it will be at a distinct disadvantage in merger talks and may be forced to accept a lower valuation dictated by Berkshire Hathaway / BNSF.
“BNSF is a cash buyer that would bring a highly disciplined approach to any negotiations, rendering CSX in a vulnerable position if it does not have alternative parties to speak with,” Ancora wrote.
The letter, dated August 6 and addressed to CSX’s independent board members, highlights Ancora’s dissatisfaction with the company’s current trajectory under the leadership of CEO Joe Hinrichs. Ancora emphasizes that CSX’s lackluster performance, especially in light of the recent Union Pacific and Norfolk Southern merger, necessitates a swift recalibration of strategy. The letter underscores a pressing need for CSX to engage actively in merger discussions to avoid being left behind in the rapidly evolving rail sector.
CSX has struggled in recent years, particularly when compared to its peers in the Class I rail sector. Ancora points out that since Hinrichs took the helm in 2022, the company’s operating ratio—a critical measure of efficiency and profitability—has worsened significantly. From a relatively healthy 58% at the start of his tenure, the ratio has ballooned to approximately 67% as normal operating expenses have consumed an increasing share of CSX’s revenue. This operational backslide has compounded investors’ concerns about the company’s direction, as well as its ability to compete effectively in a market defined by extensive consolidation and competition.
In its correspondence, Ancora argues that Hinrichs’ lack of substantive accomplishments—and his failure to seize pivotal merger opportunities—has placed CSX at a competitive disadvantage. The letter notes that while Union Pacific and Norfolk Southern were making headlines with their transcontinental merger, CSX’s leadership was reportedly focused on less impactful initiatives, such as managing its social media presence.
Ancora is not alone in its criticisms. Conversations with industry analysts, customers, and other stakeholders reveal a shared perception that CSX has been missing the strategic vision required to remain competitive. Many view CSX’s current trajectory as a glaring example of how the right leadership, or lack thereof, can significantly influence a company’s fortunes.
Ancora’s recent actions are reminiscent of its approach with Norfolk Southern. The investment firm began its campaign for change at Norfolk Southern in early 2024. Its aggressive push for improved operational efficiency led to notable changes, including the ousting of the CEO due to mismanagement, and ultimately laid the groundwork for the blockbuster merger with Union Pacific. The success of this intervention has likely emboldened Ancora to apply similar pressure on CSX.
The letter to CSX’s board highlights Ancora’s keen interest in seeing CSX pursue discussions with potential partners beyond BNSF, the immediate alternative often mentioned. Ancora is concerned that CSX’s leadership has not been proactive in establishing dialogue with other potential partners, such as Canadian Pacific Kansas City Limited (CPKC). Ancora suggests that engaging with CPKC might prove beneficial, as it could catalyze a competitive bidding environment, ensuring that CSX is not cornered into a disadvantageous position.
As Ancora pushes for change, the question remains whether CSX will heed the call. The challenges facing CSX are emblematic of broader trends within the railroad industry, where even savvy cyclical investors have struggled to find double-digit gains, and activist investors are increasingly in the driver’s seat when it comes to capital allocation and share price performance.
The coming weeks will be critical for CSX’s management team. They must weigh Ancora’s demands against their own vision for the future, while ensuring they do not miss the window of opportunity created by the current wave of consolidation.
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