CP agreement: Hunter’s open options include CSX, NS, and KCS NEWSWIRE

CALGARY, Alberta – Former Canadian Pacific CEO E. Hunter Harrison is barred from heading to Canadian National, BNSF Railway, and Union Pacific, CP disclosed in a regulatory filing today.

That leaves open the possibility that Harrison could seek management opportunities at CSX Transportation — as reported — or Norfolk Southern or Kansas City Southern, the other Class I railroads in North America.

CP filed a copy of Harrison’s separation agreement with the U.S. Securities and Exchange Commission late Monday afternoon.

Under the agreement, CP agreed to a limited waiver of Harrison’s non-competition obligations, which would allow him to work for another Class I.

CP also agreed to a limited waiver of Harrison’s non-solicitation obligations, meaning Harrison can’t seek to hire anyone above the level of manager at CP. The document makes an exception for CP’s chief of staff. The agreement does not name him, but Mark Wallace is CP’s vice president for corporate affairs and chief of staff.

By resigning, Harrison forfeits $118 million (Canadian) in benefits and awards. But he does walk away from CP with a cash payment of $4.8 million (U.S.) and agrees to sell his remaining shares in the company by May 31.

Harrison’s resignation was announced on Jan. 18. Reports immediately surfaced in the Wall Street Journal and other financial media outlets that Harrison was teaming with an activist investor to shake up the management at CSX.

Harrison told the Journal last week that he’s finalizing an agreement with hedge fund manager Paul Hilal, who was a part of the Pershing Square Capital Management team that successfully ousted CP CEO Fred Green and several CP directors after a bitter proxy battle in 2012.

“We are close to a deal to potentially look at some opportunities,” Harrison told the Journal. Harrison and Hilal — who last year launched his own activist hedge fund, Mantle Ridge — worked together on CP’s unsuccessful attempts to acquire Norfolk Southern and CSX over the past two years.

CSX says it will listen to Mantle Ridge, which may have invested up to $1 billion in CSX stock.

“The company and its board of directors will actively evaluate Mantle Ridge’s views and look forward to discussing our core strategy to continue driving earnings growth and shareholder value going forward with Mantle Ridge and all our shareholders,” spokesman Gary Sease said last week.

The news made CSX stock shoot up 23 percent in just one day, a clear sign that investors would welcome Harrison’s arrival in Jacksonville. Several Wall Street analysts have said it’s likely that CSX would be receptive to Harrison, who turned Illinois Central, CN, and CP into ultra-efficient railroads.

CSX CEO Michael Ward agreed to stay on for three additional years after his apparent successor, Oscar Munoz, left the railroad for the top job at United Airlines in late 2015.

It appears less likely that Harrison would seek to land at NS or KCS, both of which have relatively new CEOs in James Squires and Patrick Ottensmeyer, respectively.

Some industry observers have speculated that Harrison’s departure could be a back door merger effort. Harrison has been the industry’s most vocal merger proponent. Keith Creel, his successor at CP, also believes railroads need to consolidate. On CP’s earnings call on Jan. 18, Creel said mergers will happen eventually. It’s just a question of when, he said.

With Harrison at the helm of another Class I, CP would find a friendly merger partner — something railroad managers were unable to do in recent years with either NS or CSX.

As the smallest of the big six systems, CP faces stiff competition from the much larger CN, whose network extends deep into the U.S. thanks to its $8 billion acquisition binge that ran from 1998 to 2009. During that stretch, CN gobbled up the Illinois Central; Wisconsin Central; and Elgin, Joliet & Eastern to form its own route from Western Canada to Chicago and, ultimately, around the Windy City’s notorious congestion.