Ancora doesn’t have a plan. Aspirations? Intentions? Certainly. They absolutely have a plethora of words on a multitude of slides. Anyone can mock up bar charts outlining a planned 65% increase in stock price.
The challenge of improving corporate value is rarely born from a shortage of dreams or desires. Rather, it is overcoming the undulating movements of markets, sentiment, and performance. Said simply: it is a matter of execution. This brings us to the heart of what separates success from aspiration: the bridge between intention and achievement. Ancora, like many, stands at this juncture, armed with projections, nominations and forecasts. Across an unspoken, but critical, line is the rest of the industry.
One side focuses on value extraction.
Another has a lengthy history of value creation.
Execution is demanding for several reasons. First, results require a precise alignment of vision + strategy with tactical, operational capabilities. Railroading is a full-contact, outdoor sport. What is imagined in the boardroom must ultimately be proven along the tracks. Second, outcomes are dependent on and benefit from a relentless focus and consistent discipline. In an industry responsible for moving more than a third of the North American economy on any given day, the time horizon is often longer than three month increments. Finally, accomplishments are born from guiding and motivating a committed team. That is counterintuitive to strategies heavily reliant on headcount reduction, cost-cutting, and efficiency. For an industry now obsessed with expansion, there are few, if any, examples of organizations cutting their way to enduring growth.
To be clear: Execution is the last, true precursor to value creation. Everything else is just financial engineering. Execution is hard. It is often made doubly hard by impatient allocators of capital whose worldview ends at the edges of a spreadsheet.
Again, there is a significant difference between value extraction and value creation.
Every proxy battle comes with an invisible price tag: focusing on the results that actually matter.
In late 2015, Bill Ackman and Hunter Harrison devised a thoughtful and compelling merger plan and engineered a proxy battle to oust then Norfolk Southern CEO Jim Squires. It was a particularly intense time for the company with a precise focus on cost and efficiencies, mainly through restructuring and operating rationalizations. The Path to Sub-65 OR by 2020 was the clear mission for NS – partly out of industry trends, but also due to extensive shareholder pressure.
Taking a page out of “Barbarians at the Gate”, Pershing Square executed a masterclass of the activist playbook. A litany of public letters and virtual presentations modeled a run-up to a classic shareholder vote. It was troublesome for customers and employees alike. Packaging aside, a significant M&A event (CP + NSC, at the time) or substantial management change (as proposed now) is troublesome for employees and customers who, as is often overlooked, are the core value drivers for most organizations, especially those which offer a service product heavily reliant on people. Ultimately, a hostile takeover combined with a CP + NS merger was deemed inelegant and struck down by the Surface Transportation Board.
Ancora’s activities today are a throwback to 2015, ad nauseam. Character assassinations, written proclamations, and bloated presentations filled the browser pages of anyone willing to sacrifice their time. The difference between then and now?
- Clear slate of operating leaders (with a distinct track record at CP)
- Rational and digestible operating plan demonstrating efficiencies
- Informed and transparent investor model outlining returns
There is also a stark difference between experience and perspective. Pershing made substantial investments in Canadian Pacific from 2011 to 2016. Since then $CP is up roughly ~500%.
Bill Ackman once stated, “We invest generally in very good companies that have lost their way. And with better management, enormous value can be created.”
Ancora has more recently taken swings at C.H. Robinson and Forward Air, whose share prices have fallen ~25% and ~70% respectively since the firm initiated public positions. Jim Chadwick, per the Wall Street Journal, is on record as pointing singularly to share price as the indicator of value.
Chadwick said the measure of success in activist efforts “ultimately for me, it is share price. That’s the only thing our investors care about.”
Extraction is not equal to creation. It is important to point out that as of this writing, the public square is filled with not much more than superfluous words, aspirational charts, and assessments.
It is often said that comparison is the thief of joy. It is also the devil of distraction. There is often much ado about the competitor on seemingly every earnings call these days. The challenge is that many of the financial models and expectations, both internally and externally, were built for different markets and operating conditions. The precise mixture of low interest rates, unemployment, and consumer demand may never be experienced again. More importantly, the underlying concepts of the industry’s finest oxymoron precision scheduled railroading have moved from the main stage to the limelight. The biggest threat each individual railroad faces on any given day is the railroad it was the day before.
To the railroaders – the simple point is this: no one knows your network or business unit at the current time and environment better than you. Build your plan based on the operating conditions relevant to your employees and your customers in order to satisfy your investors – and then go execute. It is awfully challenging to win the game with your eyes locked on the scoreboard instead of the playing field. The play determines the score, not the playbook. The same could be said for tomorrow’s stock price.
Harris Ligon 