CSX CSX Corporation

By Paul Ziobro and Jacquie McNish 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 16, 2017).

CSX Corp. lost about $4 billion in market value Friday after Chief Executive Hunter Harrison was placed on medical leave, a stark reversal for investors who had shrugged off concerns earlier this year about the health of the renowned railroad turnaround artist.

Mr. Harrison, 73 years old, became ill last week after one of his regular, multiday pep-talks with management, known as Hunter Camps, according to acting CEO Jim Foote. The illness "led to medical complications," he told investors on a call Friday.

Mr. Foote, who was appointed to his new role Thursday, declined to discuss details of Mr. Harrison's condition or when he might return. The railroad maverick, who has struggled with respiratory issues, has been using an oxygen tank in recent months and was largely working from his home in Wellington, Fla.

"I expected to be working for Hunter for four years, and, God, I hope he comes back and we can continue to work together some more," Mr. Foote said in an interview.

Mr. Harrison's absence leaves an executive team that is still in the process of rebuilding after the exodus last month of three senior executives, including chief operating officer Cindy Sanborn. Mr. Foote, only recently hired as operating chief, was a marketing executive at Canadian National Railway Co. when Mr. Harrison led a turnaround of the Canadian company.

Several analysts said they were worried Mr. Harrison wouldn't return, while some investors and governance experts called on the company to disclose more about the CEO's health condition.

CSX had a tough decision in hiring Mr. Harrison.

Activist investor Mantle Ridge earlier this year pushed to replace five of CSX's directors and install Mr. Harrison as the company's CEO. The board initially resisted the change, citing, in part, concerns about Mr. Harrison's health. But members ultimately reached a deal with Mantle Ridge after CSX shares surged on news of Mr. Harrison's potential appointment, adding about $10 billion in market value to CSX in January.

The company awarded -- and investors approved -- Mr. Harrison a four-year contract, including an $84 million payment.

Since his appointment, shares have traded at a higher multiple versus other railroads. The shares, which were trading around $35 in January before Mr. Harrison was involved, fell 7.6% to $52.93 in trading on Friday.

"Given that Harrison's presence is obviously significant to the share value, the board of directors ought to be highly transparent at this point," said Charles Elson, head of the Weinberg Center for Corporate Governance at the University of Delaware. CSX board members should tell investors "what's wrong with him."

CSX's board chairman, Ned Kelly, didn't respond to requests for comment. Mantle Ridge, whose founder Paul Hilal is also a CSX director, declined to comment.

At the time of his medical leave, Mr. Harrison was eight months into a turnaround strategy he called "precision railroading." The plan, which included new train schedules, cost-cutting and terminal closures, was beset with a number of traffic congestion problems and other issues that triggered an outpouring of customer complaints.

Mr. Foote said the company has recently made progress with the "disruptive" strategy and he didn't see "any reason to diminish our expectations." He said Mr. Harrison had already made the most significant structural changes to how CSX operates, including shutting eight of the 12 yards that sort trains and closing numerous lanes where CSX operates intermodal trains.

"The real, real, real heavy lifting has already been done," he said.

CSX continues to face scrutiny over shipping problems. On Thursday, the Surface Transportation Board sent a letter to Mr. Harrison saying shippers are still raising concerns about service challenges and inadequate service. The agency asked the railway for more information about the current state of the network and information on any other significant changes planned for next year.

Loop Capital told investors Friday it is skeptical that Mr. Harrison will return from his medical leave. The investment and brokerage firm predicts a murky future for CSX, as Mr. Harrison's abrupt exit has left the railroad with a network and culture that is "only partially transformed."

Mr. Foote, 63, declined to comment on longer-term succession planning at CSX. "My only conversation with the board was coming in as the chief operating officer and doing everything I could to help CSX and Hunter in running the company," he said in an interview.

John Fishwick, an individual CSX shareholder, publicly opposed Mr. Harrison's pay package at the June meeting, and continues to believe the board shouldn't have reimbursed Mr. Harrison for compensation he earned at Canadian Pacific.

"When you put that much compensation for one person for what they did before they got to you, then you certainly put the company in a position to be second-guessed," said Mr. Fishwick, a Roanoke, Va., attorney.

Corrections & Amplifications Acting CEO Jim Foote said CSX's operations are improving every day. An earlier version of this article incorrectly stated Mr. Foote was referring to CEO Hunter Harrison's health. (Dec. 15)

--Joann S. Lublin and David Benoit contributed to this article.

Write to Paul Ziobro at Paul.Ziobro@wsj.com and Jacquie McNish at Jacquie.McNish@wsj.com

(END) Dow Jones Newswires

December 16, 2017 02:47 ET (07:47 GMT)

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