Activist Letter to CSX Is ‘Unnecessarily Aggressive,’ Says Analyst. Ancora Disagrees.

Activist investor Ancora wants CSX to pursue a merger. (Megan Varner/Bloomberg)

Railroad merger hype is rising, and Ancora Holdings Group wants to hop on that train, believing CSX might miss out on an opportunity to create shareholder value.

On Tuesday, the activist investor and hedge fund released a letter it sent on Aug. 6 to CSX. It demanded the railroad’s management pursue merger talks with the Berkshire Hathaway-owned BNSF Railway and the Alberta-based Canadian Pacific Kansas City .

“The Board needs to announce in the near term that it is working with identified third-party advisors to explore a range of merger options,” Ancora wrote. Failure to do so, it added, “risks impairing the long-term value of CSX.”

“We’ve said it before, and we’ll say it again: CSX welcomes all opportunities for us to enhance value for our shareholders,” said the railroad in an emailed statement. “CSX appreciates the input of its shareholders and engages regularly with them as it executes on its goals to drive value through profitable growth and industry-leading customer service.”

Railroad consolidation is a great idea—that most everyone shares. The letter comes weeks after Norfolk Southern and Union Pacific announced merger plans that could create a truly transcontinental U.S. railroad. Any railroad merger faces stiff regulatory hurdles, but if the Union-Norfolk merger is approved by U.S. government agencies, Wall Street thinks that CSX would be next on the list to be courted by either BNSF or a large Canadian railroad.

CSX could just wait to see how the Union Pacific-Norfolk process plays out. But a laid-back approach to industry restructuring won’t work, says Ancora.

“They are not moving with the kind of urgency they need to today,” portfolio manager Jim Chadwick told Barron’s. The letter, which was initially private, was intended to be a “kick in the pants,” he said.

Ancora believes that while the Trump administration would let rail mergers happen, the next administration might not. Playing a waiting game runs the risk of being shut out of rail mergers and then becoming competitively disadvantaged against a much larger Union Pacific-Norfolk transcontinental railroad.

In theory, consolidation would allow any railroad to operate more efficiently, make it a stronger competitor to rivals, and reduce shipping costs for customers.

BNSF looks like the better bet. “For plainly obvious reasons, we don’t think President Trump would allow a Canadian railroad to buy CSX,” wrote Gordon Haskett analyst Don Bilson on Wednesday. “We have said so before. Nor do we think Ancora’s CSX-CP reverse merger idea is sure to fly in Canada.”

Not everyone agrees with the aggressive approach. The “Ancora letter to CSX strikes us as unnecessarily aggressive, possibly counterproductive,” wrote Citi analyst Ariel Rosa in a Tuesday report, adding some of Ancora’s claims of anemic returns are “difficult to reconcile with reality.” Rosa points out that CSX is tied for the best share-price performance among large railroads since CEO Joseph Hinrichs joined the company in 2022.

Coming into Wednesday trading, CSX stock was up roughly 50% over the past five years, trailing the S&P 500 by roughly 40 percentage points. But shippers have had a tough time in the post-Covid environment. Union Pacific stock was up about 20% over the same span, while shares of UPS were down almost 50%.

It isn’t the first time Ancora has made waves: The activist inserted itself into the deal between U.S. Steel and Nippon Steel long after the merger was announced. Initially, Ancora demanded a new U.S. Steel CEO and the abandonment of the Nippon deal to help “make U.S. Steel Great Again.”

After much political wrangling, Nippon was allowed to buy U.S. Steel in a deal that closed earlier this year. Eventually, after coming to believe the merger was possible, Ancora supported the merger that U.S. Steel management initially recommended.

CSX stock dropped 1.5% on Wednesday, closing at $35.99, while the S&P 500 fell 0.2% and the Dow Jones Industrial Average rose less than 0.1%.

Coming into Wednesday trading, CSX stock was up 10% since Semafor reported that Union Pacific had hired bankers to pursue a merger in mid-July. The S&P 500 was up about 2% over the same span.

Write to Al Root at allen.root@dowjones.com