Norfolk Southern Corp. announced a five-year cost cutting and restructuring plan in an attempt to stave off a hostile takeover by Canadian Pacific Railway, but one Senate Democrat says he wants to stop the potential merger in its tracks.
Norfolk Southern Corp. will eliminate at least 1,200 jobs in 2016, idle sections of its tracks, restructure regional operations and reduce capital expenditures as part of a five-year plan to cuts costs, CEO James Squires said on a conference call with analysts yesterday.
The announcement comes as NS is attempting to stave off a $30 billion acquisition attempt by fellow North American freight railroad Canadian Pacific Railway Ltd. NS has repeatedly rejected the Calgary-based railway’s highly public offers, which could cause CP to take a more hostile route.
CP CEO E. Hunter Harrison, well known in the rail industry for taking struggling lines and returning them to profitability, has said the company would consider taking their offer directly to NS shareholders and engaging in a proxy fight to install new leadership.
NS yesterday reported its fourth quarter and full year 2015 profits fell 29.4 percent and 19 percent, respectively, compared to the same 2014 period. The company saw sales drop in all three lines of business: coal, general merchandise and intermodal.
The rail industry as a whole has been hit hard in the past year by a slumping commodities prices, which have caused shipments of key cargoes like coal and crude oil to drop dramatically compared to previous years. Previously the railroad sector’s largest commodity by volume, coal accounts for about one third of total U.S. carloads, but volumes have fallen sharply amid new Environmental Protection Agency regulations requiring power plants to burn it more cleanly and a drop in the price of natural gas.
Under Norfolk Southern’s strategic restructuring plan, which includes reducing the overall workforce by 2,000 employees over the next five years, NS expects to save around $130 million in 2016 and $650 million annually by 2020, according to Squires. In addition, NS will dispose of or downgrade 1,500 miles of secondary lines by 2020, including 1,000 track miles in 2016.
The plan appears to be aimed at reassuring shareholders and investors that NS management is making the necessary adjustments to reverse the negative growth trend in profits and revenues, and win in the event of a proxy battle with Canadian Pacific. When asked by analysts why it wasn’t even more aggressive in cutting costs, Squires said his plan is flexible and could escalate if necessary.
Meanwhile, one Senate Democrat seems intent on stopping an NS-CP merger in its tracks.
Sen. Joe Manchin, D-W.Va., has called for a Senate hearing on the proposed deal, calling it a “Wall Street takeover” of a prominent U.S. company.
Manchin’s office said in a statement Tuesday CP’s plan is “a transaction that will profit Wall Street investors, while potentially costing hundreds of jobs in West Virginia.”
“Senator Manchin is insisting that the details of this merger be thoroughly reviewed by the Senate Committee on Commerce, Science and Transportation,” of which Manchin is a member, “before any element of this transaction is allowed to proceed,” it added.
Manchin noted CP’s history of aggressive cost cutting measures aimed at increasing investor returns since activist investor Bill Ackman purchased a 14.2 percent stake in the railway and engaged in a proxy battle to install Harrison as CEO. According to Manchin’s office, CP has eliminated 6,000 jobs since Harrison took over as CEO, including 1,800 people in 2015 alone, and Harrison last week announced plans to cut another 1,000 jobs (12 percent of the company’s total workforce) in 2016.
“This is not just an ordinary merger,” said Sen. Manchin. “This is an attempt by a Wall Street titan to purchase and dismantle an American rail company that has provided jobs for hundreds of West Virginians.”
“We can’t get any specifics from Hunter Harrison or Bill Ackman about where the $1.8 billion will come from in this deal with Norfolk Southern, but we know the harm they have done at Canadian Pacific,” he added. “This merger creates real and present dangers to hardworking people of West Virginia. I’m calling for a Commerce Committee investigation into this merger because I want to ask Hunter Harrison what they are going to invest in, what they are going to build, and how they are going to help the people and the communities of our state.
“West Virginia cannot afford a corporate partner more focused on short-term gains for stockholders than the hard-working men and women who show up to work every day. In this economy, I’m going to fight to protect every single West Virginian job I can.”
NS to eliminate 2,000 jobs by 2020
