NS Files Preliminary Proxy Statement in Takeover Battle

Norfolk Southern on Feb. 26 filed preliminary proxy materials (Schedule 14A) with the Securities and Exchange Commission (SEC) in connection with its upcoming 2024 Annual Meeting of Shareholders, to be held in April. NS stated that it continues its “board refreshment” with nominations of two new directors, reiterated its “focus on safety and service while working to drive significant margin improvement through balanced strategy under CEO Alan H. Shaw,” and rejected Ancora’s eight board nominees and “short-sighted plan that jeopardizes sustainable shareholder value creation.”

As stated in the proxy materials (download below), Directors Thomas Bell and Steven Leer will not stand for re-election at the 2024 Annual Meeting, and as previously announced, Directors Mitchell Daniels, Jr. and Michael Lockhart have reached the mandatory retirement age and are retiring from the NS Board. Richard H. Anderson, Philip S. Davidson, Francesca A. DeBiase, Marcela E. Donadio, Mary Kathryn “Heidi” Heitkamp, John C. Huffard, Jr., Christopher T. Jones, Thomas C. Kelleher, Amy E. Miles, Claude Mongeau, Jennifer F. Scanlon, Alan H. Shaw, and John R. Thompson are NS’s 13 Board candidates.

“Each of these candidates is highly qualified and together bring the superior credentials and skills—including significant safety, operational, risk management, and strategic leadership experience—that are essential to supporting Norfolk Southern’s operations in furtherance of its strategic goals and delivering significant shareholder value,” NS said.

The two new Board candidates are Anderson and Heitkamp. “Anderson’s significant executive leadership experience in the transportation industry spans more than two decades, including his roles as president and CEO of Amtrak and CEO of Delta Air Lines,” NS stated. “His rail industry leadership and expertise will serve as a critical perspective to advise senior management and the board on railway and transportation sector issues such as operations, safety, strategic planning, labor relations, environment, and governmental and stakeholder relations, which support Norfolk Southern’s balanced strategy. Heitkamp’s significant public service experience as a U.S. Senator, North Dakota Attorney General and rail safety advocate will provide the Board with in-depth expertise on regulatory matters, safety and governmental and stakeholder relations. These are essential to the company as it works with federal and state agencies to elevate safety standards across the railroad sector and advance its strategy of delivering safe, reliable service.”

In July 2023, Admiral Philip Davidson, U.S. Navy (Ret.) and Francesca DeBiase were added to the Board as independent directors, “providing significant and immediate contributions to the board’s work on safety and risk oversight, as well as operations and logistics expertise,” NS noted. “While 2023 presented several significant challenges to service and financial performance, the company has navigated those challenges and responsibly enhanced service, safety and growth to protect the franchise and shareholders. Now, in 2024, Norfolk Southern is positioned to advance the scheduled railroading operating principles in its merchandise network that have driven productivity improvements in its intermodal network. By doing so, Norfolk Southern expects to reduce variability, complexity, and cost. At the same time, the management team has been conducting a full portfolio review of the company’s intermodal franchise to identify opportunities to further simplify and accelerate the network, ultimately contributing to improving operating margins.

“Recklessly chasing cost reduction at the expense of safety and service is not a winning strategy for creating sustainable shareholder value. Norfolk Southern’s customers, regulators and employees have made it very clear: Tthey will not tolerate service declines and safety lapses in pursuit of extreme near-term cost reductions. As articulated by key regulators, the approach Ancora has outlined, given the track record of certain of its board and management candidates, should be a serious cause for concern among all stakeholders who support the long-term growth and sustainability of the rail industry.

“Following the East Palestine incident a year ago, Norfolk Southern has made necessary investments to accelerate enhancements to its safety culture and operational transformation. This includes new technology, enhanced training and additional staffing, as well as adjustments to network design and train assembly procedures. Today, the company’s main line accident rate is the lowest it has been in years and is among the best of the U.S. Class I rails. These investments and operational advancements have meaningfully improved the company’s safety performance and service product in both its intermodal and merchandise networks. The company has fundamentally transformed its processes to reaffirm the trust of its customers, establish confidence with communities, and regain the trust of regulators to position it for sustainability and success in 2024 and beyond.

“Today, under Shaw’s leadership, Norfolk Southern’s plan is focused on three pillars: safely delivering reliable and resilient service, driving continuous efficiency improvement, and propelling smart and sustainable growth. The company’s goal is to create a more resilient railroad with a compelling service product to outperform throughout market cycles. As part of that effort, the company is building a more fluid network positioned to take on additional volume and better serve customers so it can deliver on its commitments of top-tier earnings and revenue growth with industry-competitive margins and disciplined capital allocation. Through its scheduled operating model, the company will drive productivity through its network that will result in meaningful annual margin improvements and drive long-term shareholder value.”

“As a board, our priority is ensuring we have the right composition to guide Norfolk Southern in improving operating performance, enhancing safety, delivering value for our customers and shareholders, and fulfilling our commitments to our stakeholders,” said independent Board chair Amy Miles. “Our focus on meaningful refreshment—evidenced by the two new directors added in 2023 and two new nominees presented for the 2024 annual meeting—reflects these strategic priorities and our commitment to strong governance and oversight. We are open-minded to all opportunities to enhance shareholder value and are committed to overseeing and holding our management team accountable. We are confident that the continued execution of our balanced strategy—under the vision and leadership of Alan Shaw—is critical as we prioritize operational rigor, safety and service. It is imperative the company continues to execute on its strategy, without interruption or interference, for the benefit of shareholders, customers, communities, and the industry.

“Following numerous discussions with representatives of Ancora and its nominees, we have determined that none of them possess skills or experience that are not already well represented among our Board nominees. Further, it would be highly disruptive to our operations, our workers and the North American supply chain to replace a majority of our well-functioning board, which we have refreshed in a thoughtful and intentional manner over the past several years in order to adopt Ancora’s short-sighted strategy. The Board is unanimous in rejecting Ancora’s candidates and remains unwavering in its commitment to act in the best interests of all shareholders.” We are grateful to Tom, Steve, Mitch, and Michael for their meaningful contributions to Norfolk Southern, and in turn look forward to welcoming Heidi and Richard to the Board.”

ANCORA RESPONSE

“Since Mr. Shaw and his boardroom allies have no credible plan and no viable record to run on, it makes sense that they would initiate a weak and reactionary refresh,” Ancora said in response to NS’s filing of preliminary proxy materials. “It’s now clear that qualified Class I rail executives and relevant former government leaders want no part of Norfolk Southern’s entrenchment agenda. Notably, Mr. Anderson’s background of running a passenger airline and then presiding over numerous safety incidents at Amtrak has no place on the board.”

Editor’s Commentary: As reported recently, this scenario has turned ugly, descending into character assassination. I have received material from interests representing Ancora that is nothing more than a collection of sickening innuendo. Richard Anderson did not “preside” over accidents. This implies that he planned them, purposely. That’s nonsense. Heitkamp, based on a 2021 story in Salon, “was defeated in 2018 and has become a frequent cable-news commentator” and “is now leading a dark money group’s effort to preserve a tax loophole that overwhelmingly benefits the wealthy.” She also, based on an eight-year-old Role Call article, was “considered for a Trump cabinet position.” Alan Shaw “turned a deaf ear” on East Palestine. This sort of trash-talking is totally unnecessary. It’s sadly reflective of the uncivil discourse that permeates our society. I believe that Ancora should stick to communications that allow what it believes are the strengths of its proposal to stand on their own merit. Anything else is “cazzate” (that’s Italian for BS). I’ve covered and commented on several similar happenings during my nearly 32 years at Railway Age (CSX and The Children’s Investment Fund, Pershing Square and Canadian Pacific, CP’s attempted merger with NS, Hunter Harrison’s installation at CSX as CEO, the CP/CN contest to merge with Kansas City Southern, TCI’s attack on CN, etc.). While there was forceful language, it was mostly civil and professional, on both sides. This, with TCI’s personal attack on former CN CEO JJ Ruest, is only the second time I have encountered such mean-spirited rhetoric, and it’s not on Norfolk Southern’s part. While Railway Age and I continue to remain neutral on the outcome of this particular battle—ultimately, NS’s voting shareholders will decide it—I feel compelled personally to call out mean-spirited muck that does nothing except fan the flames of hard feelings. – William C. Vantuono