Will he or won’t he challenge NS

[NS Newsfeed]

Hunter Harrison, the chief executive officer of Canadian Pacific, says he has not decided whether to seek to oust directors of Norfolk Southern, which his railroad wants to purchase, because of the unexpected departure of Union Pacific's chief legal officer. Her retirement, Harrison says, is an unexplained event that leaves him puzzled. And as the saying goes, it's complicated.

Canadian Pacific and its allies on Wall Street have until Feb. 14 to nominate a slate of directors to challenge those proposed by Norfolk Southern management. But as the clock ticks, Harrison related in an interview with Trains his own ambivalence. And it appears to involve an unlikely person, Union Pacific's Gayla Thal, whose sudden departure remains publicly unexplained.

Clearly, CP is rattled by the intensity of the attack by other Class I railroads on its proposed merger with Norfolk Southern. On Jan. 19, CP asked the U.S. Department of Justice to investigate what it says is an apparent restraint of trade that violates anti-trust laws. Although there are exemptions, it is unlawful for two or more parties to conspire to eliminate competition, which is what CP says other railroads are trying to accomplish by contacting lawmakers, regulators and shippers before the merger is put before regulators.

As evidence, CP cited two articles on Jan. 13 by Reuters reporter Nick Carey. One quoted UP chief executive Lance Fritz as saying: "We don't want Class I railroad mergers to happen. . .We'll do everything in our power to make them not happen." That same day, Carey quoted Michael Ward, CEO of CSX, as saying that CSX had met with "other major railroads in the presence of legal counsel" to discuss opposition to Canadian Pacific's bid for Norfolk Southern.

There matters rested until Jan. 29, when Thal, Union Pacific's VP-law, abruptly quit, or was fired, or retired — take your pick. Late that day, Mike Rock, UP's vice president of external affairs, emailed CP special counsel Paul Guthrie: "Paul, I wanted to let you know that Gayla retired from the company today effective January 31st. I just wanted to make sure you were aware." The two men do not know each other. Says Harrison: "I thought it was odd and very different from normal. It has thrown a curve ball into our thinking about a proxy contest to control Norfolk Southern's board. I'd like to understand this issue [Thal's departure] before I make a decision."

Union Pacific spokesman Aaron Hunt says the explanation for Rock's email to CP's attorney is simple: "As a courtesy, we reached out to all North American railroads to make them aware of the retirement."

Harrison conveyed to Trains another impediment to a Norfolk Southern shareholder vote: his age. He has proposed running NS while a merger of CP and NS is before the Surface Transportation Board. CP would be put into a voting trust and run by its current president, Keith Creel. "One of my concerns," he says, "is that we can win a proxy contest but they can keep me out of the show. Norfolk Southern has a bylaw that specifies retirement by age 72, which is my age. I need to be convinced that we have the players, which includes me, to run both organizations. Until I feel we can do this and make it work, I'm not going to pull the trigger."