Strip It Down to the Studs?

Hedge fund “investors” recently made a takeover run at Norfolk Southern, one of America’s major railroads. Their goal was to “strip this thing down to the studs.” Let me bring you up to speed.

Ancora Holdings, the investment management company behind the play, holds a large chunk of Norfolk Southern stock. Dissatisfied with NS current management, the group sought to dump CEO Alan Shaw and COO John Orr. They offered a variety of reasons, primarily poor return on investment to the railroad’s stockholders. There are other reasons. Some are valid.

The toxic train derailment in East Palestine, Ohio, has cost Norfolk Southern more than $1.7 billion after it agreed to a $600-million settlement in a class action lawsuit, clearly impacting shareholders and cutting into much-needed cash for operational improvements that both sides agree are needed.

The NS workforce was split on the proxy battle—41% of union members agreed with dumping NS management, while 58% of the workforce released a statement: “Railway labor unions, shippers, and federal regulators have all warned that Ancora’s plans will jeopardize the safety and service improvements that Norfolk Southern has made since the 2023 derailment in East Palestine, Ohio. Ancora’s plans for increasing profits are nothing more than short-term cost-cutting to artificially lower the operating ratio—all at the expense of its customers, long-term investors, and ultimately the U.S. economy. We therefore urge shareholders not to support the Ancora director nominees.”

The Teamsters put it less delicately: “Ancora Holdings is actively targeting Norfolk Southern, preying on what they view as a ripe opportunity… to deepen their own pockets, clearly prioritizing financial efficiency and short-term investment strategies at the neglect of maintaining a robust workforce and reliable infrastructure.”

Shippers, industry experts, regulators, and union members encouraged current stockholders to back Norfolk Southern management and fend off the takeover play. And on May 9, 2024, they voted to do just that. That was the correct response.

Can NS do better? Yes. All railroads can do better. Unfortunately, NS—and all of us—are operating in an economic environment not of their, or our, making.

Now is especially not the time for hedge fund gurus to come along and strip NS or any railroad down to the studs, seeking a payday by cashing in on decades of infrastructure investment, a history of forging customer relationships, and labor’s continuing commitment to serving those customers.