CSX CSX Corporation

By Jacquie McNish in Toronto and Paul Ziobro and David Benoit in New York 

Hunter Harrison has spent several years trying to assemble a transcontinental railroad empire. This week the 72-year-old maverick set aside that pursuit but not his desire to run one of America's biggest railroads.

Mr. Harrison abruptly left his job Wednesday as chief executive of Canadian Pacific Railway Ltd., leaving behind $89 million in compensation, to team up with activist investor Paul Hilal to shake up management at U.S. rival CSX Corp., according to people familiar with the matter.

Investors cheered the notion, sending shares of CSX up 23% Thursday to an all-time high of $45.51, giving the company a market value of nearly $41 billion. The stock has doubled over the past year.

While he was running CP, Mr. Harrison twice tried to acquire CSX and failed. He also launched a hostile bid for rival Norfolk Southern Corp. that ended in defeat last year. Each time the message was similar: Mr. Harrison has proved himself able to cut costs and improve operations and is a better executive than your current team.

Mr. Harrison and his backers are expected to use activist tactics to press CSX to install him in a senior leadership role at the Jacksonville, Fla., company, but they don't currently have plans to push for another industry merger, the people said.

Thursday's stock-price jump reflects the loyal following Mr. Harrison has earned from investors for his so-called precision railroad management strategy, which combines aggressive cost-cutting with tightly controlled train schedules.

The strategy was first honed at Illinois Central after Mr. Harrison was hired by a private-equity firm in 1989 to revive a railroad plagued with financial and operating problems. He applied the same techniques to Canadian National Railway Co. and, later, CP.

Mr. Harrison has such reverence for his operating strategy that the Memphis-born son of a former traveling preacher organized "Hunter Camps, " daylong brainstorming sessions at CN and CP to spread the gospel with staff about running a more efficient railway.

Unlike his takeover attempts, Mr. Harrison may find a more receptive ear at CSX if his plan is to work at the company, investors and analysts say. Such a move wouldn't raise the antitrust concerns of a takeover. Plus, CSX has a chief executive near retirement age.

CSX said its board of directors will "actively evaluate" the views of Mr. Hilal's fund, Mantle Ridge LP, and looks forward to discussing the company's strategy with shareholders. The railroad also said its board and management team remain supportive of the company's current strategy.

The campaign for CSX will closely resemble when Pershing Square Capital Management LP , Mr. Hilal's former firm, ran a successful proxy battle in 2012 to replace a majority of CP's directors and install Mr. Harrison as the CEO.

Mr. Hilal, who was a partner at Pershing Square, helped steer the CP proxy battle. The team will also include Mark Wallace, a longtime lieutenant to Mr. Harrison and a CP executive who is expected to resign from the railway, according to people familiar with the matter.

Mr. Harrison will likely face questions about his health. He is six years older than CSX's current chief executive, Michael Ward, and had health issues in 2015. After a bout of pneumonia and other complications, Mr. Harrison took sick leave for several weeks, after which his doctors recommended he limit long-distance traveling.

One person close to Mr. Harrison said his doctors have cleared him to continue working. Travel will be more limited if he moves to CSX as its Jacksonville headquarters is about 300 miles north of the Harrison family horse farm near West Palm Beach, Fla.

Anthony Hatch, a New York-based railway consultant who has known Mr. Harrison for years, said the executive doesn't "feel like going out to pasture."

One institutional investor welcomed the notion of Mr. Harrison as the next CSX leader. At Canadian Pacific, "he took the worst performing railroad ... and turned it around in a relatively short period of time," this investor said. But the investor acknowledged that age was a concern, adding "you generally look for someone who will be there for a decade."

Bringing in Mr. Harrison could help with the succession plan for Mr. Ward, who took over as CEO in 2003 and has spent nearly four decades with CSX. Mr. Ward's retirement was delayed two years ago when the company lost its No. 2 executive, Oscar Munoz, to the top job at United Continental Holdings Inc.

"CSX management may be more receptive than people think," wrote Citi analyst Christian Wetherbee.

Word of Mr. Harrison's plan comes as the railroad industry sees brighter days ahead, with moderating losses in coal revenue and rising consumer and business confidence.

"There's reason to be optimistic that we'll really start seeing some uptick in volume," Union Pacific Corp. CEO Lance Fritz said in an interview.

CSX, which operates one of two major rail networks east of the Mississippi, on Tuesday reported a slight dip in fourth-quarter profit but projected higher profit for the coming year despite a stronger U.S. dollar and low commodity prices.

One area where the company has room to improve is profitability. CSX has for years aimed to reach an operating ratio -- a measure of costs as a percentage of revenue -- in the mid-60s. In its last fiscal year, its ratio was just under 70%.

--Joann S. Lublin and David George-Cosh contributed to this article.

Write to Jacquie McNish at Jacquie.McNish@wsj.com, Paul Ziobro at Paul.Ziobro@wsj.com and David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

January 19, 2017 19:22 ET (00:22 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.