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Activist investor Ancora has won three board seats at Norfolk Southern in a dramatic show of shareholder discontent at one of the biggest US freight railroad groups, but fell short of ousting chief executive Alan Shaw.
Ancora, based in Ohio, waged a proxy fight in a push to install a new CEO and wrest control of the 13-person board of directors at the $50bn company.
The investor sought to cut costs, arguing that Norfolk Southern should adopt a simplified approach and reduce the number of its employees and railcars.
The board shake-up comes about a year after a Norfolk Southern-operated train carrying hazardous materials derailed in the small town of East Palestine, Ohio, and burnt for several days. The accident, which raised questions about safety across the North American rail freight industry, has been blamed for spreading dangerous pollutants in the area — a claim that the Atlanta-based company has denied.
Ancora’s board appointments, which include a former executive at the US railway regulator Surface Transportation Board, mark a partial victory for the $10bn hedge fund. Its efforts to oust Norfolk’s Southern’s CEO and overhaul the board were backed by two labour unions as well as proxy advisory firms Institutional Shareholder Services and Glass Lewis.
“Our shareholders recognise that positive change is under way at Norfolk Southern,” the company said following its annual meeting on Thursday. “We will work constructively and collaboratively on behalf of our shareholders unlocking the full potential of our powerful franchise.”
However, Anthony Hatch, an independent railroad analyst, said it was a “resounding victory” for Norfolk Southern that Ancora had not succeeded in winning a majority of board seats or unseating Shaw.
“It’s a big win for Norfolk Southern but they remain on notice,” he said.
Ancora’s campaign to rein in costs at the railway operator drew criticism from many industry observers, who warned it could leave railroads under-resourced.
Hatch said the activists’ assertion that the railroad needed a comprehensive revamp — to be “taken down to the studs”, as they said — might have been decisive in shifting the mood against their campaign.
The campaign by the activists had been an opportunistic attack after the problems caused by the East Palestine disaster, Hatch added.
“They just saw the slowest gazelle in the herd and pounced,” he said.
Their strategy had also faced criticism from Martin Oberman, the outgoing chair of the STB.
Oberman, who leaves his post on Friday, told a meeting of North American rail shippers earlier this month that, while he would not tell anyone how to vote, it was his responsibility to “call out serious threats to the national rail network”.
“Everything about Ancora’s campaign should cause serious concerns to all rail stakeholders,” he said.
Henry Posner, a veteran rail executive who is chair of the Iowa Interstate Railroad, said Norfolk Southern’s management had been wrestling with issues including its market share and recovery from the East Palestine disaster.
“You have an investor group that senses weakness and a chance to implement a short-term strategy which will have negative implications for the long term in terms of both market share and resiliency,” he said.
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