Pacific Alliance group
UNP 0.36%
said on Sunday it plans to appoint a new chief executive this year, hours after a major shareholder publicly urged the rail company’s board to remove Lance Fritz from the job. .
Soroban Capital Partners, a hedge fund in New York manage about 10 billion dollarson Sunday reveal a letter it wrote to Union Pacific executives pushing for change, arguing that the company had underperformed under Mr. Fritz. The letter was previously reported by The Wall Street Journal.
Union Pacific said in a statement that its board is focused on finding “highly qualified candidates both in the industry and in neighboring industries.” Among its considerations is a successful track record in safety and operational issues, the company said, noting Mr. Fritz has achieved financial growth under difficult conditions.
Soroban argued that Union Pacific, largest freight rail operator in the US with a market capitalization of nearly $120 billion, ranked worst in key performance metrics including safety, volume growth and total shareholder return during Mr. Fritz’s eight-year tenure, despite the strength of the network. According to FactSet, the profits of railroad company Omaha, Neb.
Eric Mandelblatt, founder of Soroban, writes: “We want UNP to prosper. “Unlike typical shareholder engagements that have many requirements, Soroban has only one: appoint new management who can operate trains safely and on time.”
Soroban is a longtime investor in Union Pacific, one of the company’s largest shareholders with a more than 1% stake worth about $1.6 billion.
Union Pacific said it decided to disclose the expected time for the leadership change after Soroban advised the company recently that it planned to go public with its concerns.
The rail operator said it first engaged with an outside consultant and formed a task force among its directors last year to help identify a successor to Mr. conversation between him and the board.
Lance Fritz has been the chief executive officer of the Omaha, Neb., railroad for eight years.
Photo:
Victor J. Blue/Bloomberg News
Soroban is promoting railroad veteran Jim Vena, 64, who was Union Pacific’s chief executive from 2019 to 2020, to the top job. Soroban believes the company’s share price could double in two years under Mr. Vena, based on his executive experience in the industry, the letter read.
Mr. Vena said he would be open to dialogue with Union Pacific about taking on the role of CEO and expressed his admiration for the company. “Union Pacific has the opportunity to be the best in the industry,” he said.
Soroban’s letter said the fund has for many years, including most recently in August, expressed its dissatisfaction with the company’s performance. Soroban has told the board that it must act quickly so that Union Pacific can capitalize on trends that investors believe are converging to benefit rail, including new investment in manufacturing. in the country and efforts to reduce carbon emissions.
Soroban is “fully committed to ensuring that these changes are implemented expeditiously,” the letter read.
In January, Union Pacific reported fourth-quarter profit and revenue that fell short of Wall Street expectations, with labor shortages, inflation and harsh winter weather weigh on growth. Union Pacific and other U.S. rail operators have offered a bleak outlook for 2023 as demand for manufactured goods among other products softens, as well as higher costs. .
Union Pacific has also drawn scrutiny from the Surface Transportation Board, the governing body that oversees US freight rail lines. STB in December held a hearing pointing out the Union Pacific problem increased use of sanctions—restrictions that rail operators place on how much cargo can be transported — which the regulator says has caused complaints from shippers and exacerbated supply chain problems response.
It is unusual for Soroban to openly push for change. The hedge fund is focused on equities and in recent years has focused on big tech companies and, more recently, investing in commodities. But it has rarely held an active position since its founding in 2010.
Mandelblatt, 47, began his career on Wall Street as an energy analyst for Goldman Sachs Group Inc. in the 1990s and has invested in railways since 2005. Soroban has invested in Union Pacific since 2016 and is a major shareholder in CSX Corp. It has also invested in Norfolk Southern Corp.
Soroban push coming at a time of increased activity When stock prices fall sharply, investors are encouraged.
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