Harrison Eyes Another Job After Retiring Early From Canadian PacificBy
Harrison gives up C$118 million to modify non-competition deal
Creel to take the helm, accelerating plan for June ascension
Canadian Pacific Railway Ltd. appointed Keith Creel as chief executive officer to replace Hunter Harrison, who is stepping down earlier than planned after seeking the board’s permission to work for another railroad.
A separation agreement gives the outgoing CEO a “limited waiver” of his non-competition obligations, the Calgary-based railroad said in a statement Wednesday. Harrison is giving up C$118 million ($89 million) in benefits and awards as part of the pact, according to the statement.
A career railroader, Harrison spent seven years as CEO of Canadian National Railway Co. before retiring at the end of 2009, having solidified the company’s status as the leanest North American railroad. Harrison was lured out of retirement in 2012 by shareholder activist Bill Ackman -- and promptly turned Canadian Pacific from the continent’s least-efficient carrier into one of the best performing.
“Let the conjecture begin,” Walter Spracklin, an analyst at RBC Capital Markets, said in a note to clients. “The key question will be what level of ‘opportunity’ the press release is referencing and which railroads are going to be the focus of Mr. Harrison’s attention.”
The departure of CSX Corp. CEO Mike Ward in the next couple years may spur speculation that Harrison will end up at the Jacksonville, Florida-based railroad, Spracklin said. Ward committed in 2015 to stay on for three more years after Oscar Munoz, who was groomed as his replacement, abruptly left to become CEO of United Continental Holdings Inc.
CSX surged 13 percent to $41.50 at 5:20 p.m. in New York, after the close of regular trading. Harrison is partnering with activist investor Paul Hilal in an attempt to shake up management at CSX, the Wall Street Journal reported Wednesday. The railroad declined to comment.
Other potential destinations for Harrison include Union Pacific Corp., Kansas City Southern and Warren Buffett’s BNSF Railway Co., Spracklin said. Harrison’s departure may also fuel musings that he will participate in a “renewed pursuit of Norfolk Southern,” said Christian Wetherbee, an analyst at Citigroup Inc. At Canadian Pacific, Harrison led an Ackman-backed attempt to acquire the U.S. railroad -- to no avail.
Norfolk Southern rose 6.1 percent to $116.62 in late trading. Kansas City Southern climbed 1.2 percent to $85.99 while Union Pacific advanced less than 1 percent. Representatives of those railroads weren’t immediately available for comment after normal business hours.
Harrison, a Tennessee native, began his career in 1963 as an 18-year-old carman-oiler for St. Louis-San Francisco Railway Co., lubricating train wheels while attending the University of Memphis. In 1998, as head of Chicago-based Illinois Central, he agreed to a takeover by Canadian National.
For all his operational prowess at Canadian Pacific, Harrison never succeeded in his attempts to acquire a U.S. Class 1 carrier and create a coast-to-coast network. Less than a year ago he abandoned a bid to buy Norfolk Southern after five months of public efforts and several rejected bids. He also failed to persuade CSX to engage in merger talks -- first in 2014 and again last year.
Even so, Creel said Wednesday he’s convinced rail mergers will occur in the absence of new railways being built -- echoing a view that Harrison has long held.
“I don’t know if it’s going to be two years, three years, five years, but it’s inevitable,” Creel said. “Consolidation will occur, and I can certainly see that happening within my career.”
Creel said Canadian Pacific investors should “expect more of the same” as he takes over.
“My style is a bit different than Hunter’s, obviously,” he said on a call with investors and analysts. “Maybe my shadow’s not as great as his, but certainly if he’s done his job, and he’s done it well, I’ve learned a lot from that gentleman over the years. We know how to railroad this company, and we’re going to make money for our shareholders.”
While Creel’s appointment will become effective Jan. 31, the 48-year-old will assume the CEO’s duties before that as Harrison goes “immediately” on vacation until the end of the month. The company previously announced Harrison, 72, would retire in June.
Harrison recruited Creel away from Canadian National, where he had been chief operating officer, and anointed him his likely successor at Canadian Pacific.
“We’ve been preparing for this seamless leadership transition since Keith arrived in 2013,” Canadian Pacific Chairman Andrew Reardon said on a conference call with investors and analysts. “Hunter and his team have been focused on implementing the operating plan, building a strong bench and preparing for the future.”
Canadian Pacific’s adjusted profit in 2017 will post an increase ”in the high single digits” from last year’s C$10.29, the railroad said. That implies per-share profit of less than C$11.32, trailing the C$11.83 average of analyst estimates compiled by Bloomberg.
The railroad reported fourth-quarter adjusted earnings of C$3.04 a share, missing the C$3.11 average of analyst estimates compiled by Bloomberg. Revenue fell to C$1.64 billion, compared with the C$1.65 billion average estimate.
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