A shareholder vote on an attempted takeover of Atlanta-based Norfolk Southern could shape the railroad’s future.
Norfolk Southern shareholders will vote Thursday during the company’s virtual annual meeting on a proposal by activist investor group Ancora Holdings to replace most of the company’s board members.
Here are the issues and what’s at stake.
What led up to the attempted takeover?
Norfolk Southern has been under harsh scrutiny since the fiery February 2023 derailment in East Palestine, Ohio, of a train carrying hazardous materials.
The disaster left thousands of residents concerned about the impact on their small town and their future health, prompted federal investigations, lawsuits and national criticism.
What’s more, Norfolk Southern has racked up more than $1.6 billion in charges due to the derailment, including a $600 million class action settlement. Its financial performance has suffered.
A series of other Norfolk Southern accidents also led to heightened concerns about a safety crisis and prompted the National Transportation Safety Board to launch a special probe into the company’s safety culture.
Norfolk Southern CEO Alan Shaw last year pledged to “rebuild our safety culture from the ground up.” He has also led a strategy to improve the railroad’s operations and address service problems.
The NTSB’s final findings on the East Palestine wreck are scheduled for a June 25 meeting in Ohio.
What is Ancora Holdings Group?
Ancora is the activist investor firm that has outlined a detailed proposal to replace the majority of Norfolk Southern’s board, appoint its own picks for CEO and chief operating officer and change the way the company operates.
Ohio-based Ancora is an investment firm that owns an equity stake in Norfolk Southern, and offers investment advisory, wealth management, retirement plan and insurance services to clients. It also calls itself “a long-term supporter of union labor.”
The company’s CEO, Fred DiSanto, is a former executive vice president of Fifth Third Bank’s investment advisers division, who is on multiple boards, including steelmaker Ampco-Pittsburgh Corp. and manufacturing firm The Eastern Company.
Ancora also has a group of professional firms advising it in its Norfolk Southern campaign, including proxy solicitor D.F. King & Co., communications and strategy adviser Longacre Square Partners, and legal adviser Cadwalader, Wickersham & Taft.
What is Ancora’s proposal?
Ancora wants to replace seven of Norfolk Southern’s 13 board members with its own picks.
It also proposes to make former UPS executive Jim Barber the railroad’s CEO, and wants to install former CSX executive Jamie Boychuk as chief operating officer.
Ancora says its leadership picks can improve Norfolk Southern’s service, safety and long-term value.
“Norfolk Southern has good bones, structure. It just needs to be stripped down to the studs and we need to rebuild this thing,” Boychuk said during a town hall for shareholders.
Ancora’s board picks include John Kasich, former Republican Ohio governor; Sameh Fahmy, a former Kansas City Southern railroad executive; and William Clyburn Jr., a Democrat and former vice-chair of the U.S. Surface Transportation Board.
Other proposed board members include Betsy Atkins, founder of venture capital firm Baja Corp.; Gilbert Lamphere, chairman of MidRail Corp.; Allison Landry, a former Credit Suisse analyst of railroads and transportation companies; and Barber.
DiSanto was introduced to Barber through a golfing buddy.
“He said, have you ever talked to Jim Barber,” DiSanto said in an interview with The Atlanta Journal-Constitution. “Got on the phone, and I tell you, we were thoroughly impressed. … I got to know him extremely well over the last year and a half.”
How has Norfolk Southern responded?
Under pressure from Ancora’s proposal, Norfolk Southern has taken its own steps for reform, including replacing its chief operating officer.
The railroad in March announced it was replacing its COO Paul Duncan with John Orr, who was chief transformation officer at Canadian Pacific Kansas City (CPKC).
Credit: TNS
Credit: TNS
The appointment of Orr as COO cost Norfolk Southern $35 million, a recent filing said. That includes $25 million Norfolk Southern previously said it had agreed to pay CPKC for a waiver of Orr’s noncompete provisions and other “financial and commercial considerations.”
Norfolk Southern also proposed to add two new independent directors to its board: Richard Anderson, former CEO of Atlanta-based Delta Air Lines and Amtrak; and Mary Kathryn “Heidi” Heitkamp, a former Democratic U.S. Senator from North Dakota.
The company is also on a path to reduce its total head count by 2% by the end of the year.
Norfolk Southern has launched its own vigorous campaign, advocating for its strategy and asking for shareholders’ votes ahead at the railroad’s annual meeting. The company disclosed that it recorded $21 million in costs associated with shareholder advisory matters in the first quarter.
What are others saying?
Ancora has won some support from unions and shareholder advisory firms. Others have criticized its plan.
A major union that represents some of Norfolk Southern’s workforce, the Brotherhood of Locomotive Engineers and Trainmen (BLET) division of the Teamsters union, has switched allegiance from management to Ancora. The Brotherhood of Maintenance of Way Employees Division of the Teamsters has also voiced its support for Ancora’s plan.
Together, the two labor groups make up about half the unionized workers at Norfolk Southern, according to Ancora.
Another major union at Norfolk Southern, the International Association of Sheet Metal, Air, Rail and Transportation Workers Transportation Division (SMART-TD), is opposed to a takeover by Ancora and accused BLET of “deciding to buy in with a hedge fund.”
The AFL-CIO has also urged Norfolk Southern shareholders to reject Ancora’s takeover, which it said could derail safety and service improvements underway.
Shareholder advisory firms have lent their support to at least some of Ancora’s proposed board members.
But Ancora’s plan has also drawn deep skepticism.
In published remarks last week, the retiring chairman of the Surface Transportation Board, the economic regulator of the railroads, warned of “serious concerns” about Ancora’s plans.
“There is little doubt in my mind that if Ancora succeeds in taking control of NS and strips it down as it promises, service will suffer a significant deterioration,” said Martin Oberman, who is stepping down from his role later this month.
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