Ancora's take on Norfolk Southern’s appointment of John Orr as COO

CLEVELAND–(BUSINESS WIRE)–Ohio-based Ancora Holdings Group, LLC (collectively with its affiliates, “Ancora” or “we”), which owns a large equity stake in Norfolk Southern Corporation (NYSE: NSC) (“Norfolk Southern” or the “Company”), today issued the below statement in response to the Company’s appointment of its third COO in two years under CEO Alan Shaw:

“The Board and Mr. Shaw put their own interests ahead of shareholders’ interests by paying $25 million and giving up part of Norfolk Southern’s long-term franchise, in the form of concessions related to the Meridian Speedway and Terminal, just to hire a COO without any experience at an Eastern railroad and whose most recent role was eliminated altogether at CPKC.¹ Keep in mind that Norfolk Southern invested approximately $300 million for a 30% stake in the Meridian assets in 2006, suggesting the net present value of that stake is worth significantly more in 2024. The deal disclosed today allows Norfolk Southern to hire one questionable executive while permitting CPKC to leverage concessions to realize greater value from its transaction involving the Meridian & Bigbee Railroad, which it is pursuing with CSX.² The deal also proceeded despite Norfolk Southern’s previous concerns about CPKC and CSX’s partnership plans.³ It appears the Board and Mr. Shaw struck a fool’s bargain that gets Norfolk Southern a short-term PR win while CPKC and CSX, the Company’s closest peer, strengthen their partnership and competitive offerings. Based on the real and implied cost of securing Mr. Orr, who analysts and investors have told us they never heard of prior to today, the sitting directors may have signed off on one of the most expensive and overpriced hires in industry history.

Norfolk Southern’s leadership took this costly and defensive step amidst an election contest, absent a comprehensive search and interview process, and without providing shareholders any say in the decision.⁴ We believe this action does not just deprive shareholders of the best possible COO and strengthen two other Class I railroads, but it puts in place an individual with limited experience as an operations leader and little involvement in any recent PSR implementation. The fact is Mr. Orr was appointed EVP of Operations at Kansas City Southern after it had already announced its merger with Canadian Pacific in March 2021 and well after Sameh Fahmy, our director candidate, oversaw a multi-year network transformation as EVP of PSR at Kansas City Southern.

It is important to note that the Board not only rejected the opportunity to speak with our proposed COO, who has received extremely positive feedback from shareholders, but it never even offered to have a substantive discussion with us about freeing him up from expiring employment obligations. It speaks volumes about the Board and Mr. Shaw’s motives that they would not even have an introductory call with a seemingly superior operator, who was the EVP of Operations at CSX when it outperformed Norfolk Southern on every key railroading metric (despite the wildly misleading claims in the Company’s March 20^th letter). They made this conscious decision, which entailed an excessive cash payment and commercial concessions, despite fully knowing that our candidate is getting strong praise from the investment community, suggesting a disregard for shareholders’ feedback and interests. This decision was also made after the Board became aware of publicly filed legal actions involving Mr. Orr.

Based on Norfolk Southern’s repeated acts of desperation and factually inaccurate attacks on our people, it seems the Board and Mr. Shaw will do and say anything to try to stay in place. However, the appointment of Mr. Orr and the publication of seemingly fanciful financial and operational targets do not represent a ‘reset’ for Norfolk Southern’s reeling leadership – to the contrary, what has come out today only reinforces the need for sweeping leadership changes atop the Company. Norfolk Southern needs a Board that puts shareholders’ interests ahead of insiders’ interests.”

To recap:

– Norfolk Southern has paid $25 million and given away a key element of its franchise to hire Mr. Orr, resulting in what we consider to be an ill-conceived deal that benefits competitors and harms shareholders.

– Mr. Orr, who was hastily hired without a broad search and lacks Eastern railroad experience, does not appear to be the best available executive to implement PSR principles and help transform Norfolk Southern’s network.

– Much to our disappointment, the Board refused to even speak with our proposed COO, Jamie Boychuk, who oversaw best-in-class operating metrics and network efficiencies at CSX.

– Rather than putting the best people in place to drive shareholder value, the Board seems to be making costly deals and poor decisions at the expense of shareholders in order to insulate CEO Alan Shaw and incumbent directors.

– Mr. Orr’s hire does not change our view that the Company continues to have the wrong CEO in Mr. Shaw and the wrong strategy in the form of “resilience” railroading.

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About Ancora

Founded in 2003, Ancora Holdings Group, LLC offers integrated investment advisory, wealth management, retirement plan services and insurance solutions to individuals and institutions across the United States. The firm is a long-term supporter of union labor and has a history of working with union groups and public pension plans to deliver long-term value. Ancora’s comprehensive service offering is complemented by a dedicated team that has the breadth of expertise and operational structure of a global institution, with the responsiveness and flexibility of a boutique firm. For more information about Ancora, please visit https://ancora.net.

Advisors

Cadwalader, Wickersham & Taft LLP is serving as legal advisor, with Longacre Square Partners LLC serving as communications and strategy advisor and D.F. King & Co., Inc. serving as proxy solicitor.