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Shares of railroad giant Norfolk Southern Corp. on Thursday were on pace for their biggest percentage gain in nearly four years, after a report claiming an investor group is looking to take over the company’s board and unseat its chief executive.
The Wall Street Journal reported the plans of the investor group, which is being led by Ancora Holdings, late Wednesday. The move by the investors comes as Norfolk Southern
NSC,
continues to grapple with the derailment of a train one year ago in East Palestine, Ohio, that was carrying toxic chemicals.
Shares jumped 7.4% to $252.56 on Thursday. The advance put the stock on pace for its largest percentage increase since May 18, 2020, when it rose 6.47%. It also put shares on track for their highest close since Feb. 3 of 2023, when they closed at $252.12.
The derailment shook the local community and led to deeper concerns about the health and environmental impacts of the incident, as well as railroads’ safety standards after years of cost cutting. One analyst on Thursday said any activist-investor pressure could lead to more cost cuts, and noted that Ancora’s involvement in other companies hasn’t always helped share prices.
According to the Journal, the investors have amassed a stake of around $1 billion and nominated a majority director slate that includes former Ohio Gov. John Kasich and rail-industry veteran Sameh Fahmy. Those nominees, the Journal said, have expressed concerns over Norfolk Southern’s response to the derailment and believe that its chief executive, Alan Shaw, has fallen behind on operational goals.
The investors’ plan, the Journal said, would be to use their control over the board to take actions to lift Norfolk Southern’s stock price, which tumbled in the wake of the derailment but has rebounded since October. The stock is down around 1% over the past 12 months.
Norfolk, when reached, did not comment directly on the report, saying its board and management “regularly engage with shareholders and take their perspectives seriously.” Ancora did not immediately respond to a request for comment on the report.
The rail carrier faces other issues. During Norfolk Southern’s fourth-quarter earnings call last week, Shaw said that freight demand remained “stubbornly weak” after a boom in shipping demand during the pandemic and two years of higher prices that have led to larger economic jitters.
Profits fell sharply during the quarter, and the company booked a $150 million charge related to the derailment. And after efforts to improve safety last year, Norfolk Southern during the call said it would try to reduce costs in other areas, including a plan to cut management staff by 7%.
TD Cowen analyst Jason Seidl, in a note this week, said any action from activist investors wouldn’t be a surprise. More aggressive cost cuts, he said, could follow.
“Given the company’s underperformance vs. its peer group, we wouldn’t be surprised to see an activist step into the arena,” Seidl wrote. “Pressure on the Board could lead to (1) a more rigorous cost-cutting effort, and (2) changes at the upper-management level … Such changes may give investors more conviction in NSC’s ability to close the gap between U.S. Class I [operators]” of the nation’s largest railroads.
Ancora, he said, also has a 1.8% stake in transportation and logistics provider C.H. Robinson Worldwide Inc.
CHRW,
and a stake in Forward Air Corp.
FWRD,
— but noted that the investment firm’s track record has its bruises.
“We note to investors that Ancora was not successful in placing their preferred candidate in the top job at CH, and CHRW has underperformed vs. its peers,” Seidl said. “Ancora also holds a 2.9% stake in Forward Air, which has proven messy with the activist opposing the company’s proposed deal with Omni, resulting in a large drawdown in the company’s stock.”
