Shares of railroad giant Norfolk Southern Corp. saw a significant surge on Thursday following news of a potential investor group looking to take over the company’s board and remove its chief executive. Led by Ancora Holdings, the investor group’s plans were reported late Wednesday by The Wall Street Journal.
This development comes as Norfolk Southern continues to deal with the aftermath of a train derailment in East Palestine, Ohio, a year ago. The incident involved the transportation of toxic chemicals, raising concerns about the community’s well-being and the railroad’s safety standards. Analysts speculate that increased pressure from activist investors could lead to further cost-cutting measures, although the effectiveness of Ancora Holdings’ involvement in other companies remains uncertain.
According to The Wall Street Journal, the investor group has accumulated a stake worth approximately $1 billion. They have also nominated a majority director slate consisting of former Ohio Gov. John Kasich and rail-industry veteran Sameh Fahmy. Concerns over Norfolk Southern’s response to the derailment and CEO Alan Shaw’s ability to meet operational goals have been expressed by these nominees.
The investor group’s strategy would revolve around using their influence on the board to implement actions that would enhance Norfolk Southern’s stock price. Although the stock plummeted after the derailment, it has made a steady recovery since October. However, over the past twelve months, the stock remains down by 2.1%.
When contacted for comment, Norfolk Southern refrained from addressing the specific report but emphasized their commitment to engaging with shareholders and considering their perspectives seriously. Ancora Holdings has not yet responded to requests for comment on the matter.
Norfolk Southern Faces Challenges Amid Weak Freight Demand
Norfolk Southern, the rail carrier, is experiencing difficulties as it grapples with various issues. Despite a surge in shipping demand during the pandemic and two years of elevated prices that have caused economic concerns, freight demand remains persistently weak.
During Norfolk Southern’s recent fourth-quarter earnings call, profits notably declined, and the company incurred a $150 million charge related to a derailment incident. In response to these challenges, the company announced its plan to reduce costs in different areas, which includes a 7% reduction in management staff.
According to TD Cowen analyst Jason Seidl, it would not come as a surprise if activist investors take action. He suggests that the company’s underperformance compared to its peer group may prompt activists to advocate for more aggressive cost cuts and changes in upper management. These actions, if implemented, may instill greater confidence in Norfolk Southern’s ability to close the gap between itself and other major railroads in the United States.
It is worth noting that Ancora, an investment firm, holds a 1.8% stake in the transportation and logistics provider C.H. Robinson Worldwide Inc. (CHRW) and also has a stake in Forward Air Corp. (FWRD). However, Ancora’s track record indicates some setbacks, as the firm was unsuccessful in placing their preferred candidate in a key position at CH Robinson Worldwide Inc., which has ultimately underperformed compared to its peers. Additionally, Ancora’s opposition to Forward Air’s proposed deal with Omni resulted in a significant decline in the company’s stock.
Norfolk Southern’s path forward will require overcoming these challenges and finding innovative strategies to navigate the current freight market environment.
