Ancora Sends Important Letter to Fellow Shareholders About Our Collective Opportunity to Transform and Turn Around Norfolk Southern




Ancora Sends Important Letter to Fellow Shareholders About Our Collective Opportunity to Transform and Turn Around Norfolk Southern

Highlights Opportunity to Install Trustworthy Leadership with Governance Acumen and the Operational Experience to Implement a PSR-Powered Scheduled Network that has Underpinned Superior Service, Safety and Value at Other Class I Rails

Outlines Shareholder Slate’s Commitment to Protecting Norfolk Southern’s Interests in the Meridian and Wylie Assets Following the Board’s Costly, Opaque Deal with CPKC to Hire a Third COO in 2.5 Years Amidst a Contest  

Underscores the Risks Associated with Giving Incumbent Leadership More Time to Control the Company’s Governance and Run a Resilience Network Producing Worst-in-Class Results

Shares an Appendix with Facts-Based and Well-Sourced Responses to Incumbent Leadership’s Claims

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 updated shareholders on its campaign to elect seven unaffiliated and qualified candidates (the “Shareholder Slate”) to the Company’s 13-member Board of Directors (the “Board”) at the Annual Meeting of Shareholders (the “Annual Meeting”) on May 9, 2024. Vote on the BLUE Proxy Card to elect the entire Shareholder Slate at the Annual Meeting.

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Fellow Shareholder,

Ancora is a meaningful investor in Norfolk Southern. We’re asking you to elect seven new members to Norfolk Southern’s 13-person Board at the May 9^th Annual Meeting. Given the scope of this ask, we committed at the outset of our campaign to provide you with the respect and transparency an owner deserves when considering a change to a majority of a board of directors. As our campaign enters its final weeks, we will fulfill this commitment by asking you to focus on substantive matters and ignore the fearmongering, spamming and eleventh-hour stunts that often seep into the last days of contested elections.

Rather than inundate you, we will continue to ask that you focus on one defining question when making your ultimate voting decision:

Do you want Norfolk Southern to have leadership with the experience and judgment to properly implement Precision Scheduled Railroading (“PSR”), so the Company can finally achieve the service, safety and long-term value realized by every other publicly traded Class I rail?

If the answer is “yes,” this Annual Meeting represents your best opportunity to usher in the type of change that drove lasting turnarounds at rails such as Canadian Pacific and CSX. Our position is supported by three points:

1. The Right Slate at the Right Time

The Shareholder Slate as a whole is greater than the sum of its parts. It is uniquely positioned to add value right away and build consensus in an expeditious manner. Its attributes include:

• Rail Industry and PSR Expertise – Nominees Sameh Fahmy and Gilbert Lamphere bring first-hand experience overseeing orderly PSR implementations and supporting turnarounds at Class I rails. Mr. Fahmy led a successful network redesign and subsequent transformation as EVP of PSR at Kansas City Southern from 2019 to 2021 and, prior to that, oversaw a rail transformation as a director of Rumo Logistica (RAIL3.SA) from early 2017 to early 2020. Mr. Lamphere hired industry legend Hunter Harrison, helped develop the concept of PSR and participated in value-enhancing network redesigns as a director of Canadian National, Illinois Central and CSX. Both individuals will also add decades of experience developing, reviewing and optimizing rail safety and service protocols.
• Community, Government and Safety Expertise – Nominees William Clyburn, Jr., a former Surface Transportation Board Vice Chairman, and John Kasich, a long-serving U.S. congressman and two-term governor of Ohio, bring policy insight and public safety perspectives that only come from holding the right leadership positions in government. Mr. Clyburn also has direct experience advocating for shippers and leading a derailment response effort to support communities impacted by Norfolk Southern’s 2005 crash in Graniteville, South Carolina. Mr. Kasich also possesses the important viewpoints of an Ohioan, who has spent his life addressing underperformance within large institutions, and a record of championing bipartisan legislation that put billions of investment dollars into one of the country’s largest state transportation systems. As governor, Mr. Kasich also oversaw Ohio’s successful effort to become the first state to receive approval and certification from the Federal Transit Administration for its State Safety Oversight Program.¹
• Change Management and Finance Expertise – Nominee Betsy Atkins was a director during the historic change-in-control transition at Darden Restaurants, served as a director at Volvo during a period of increased technology integration within vehicles and is a current director of Atlas Air Cargo, which has operational and safety considerations similar to Norfolk Southern. Nominee Allison Landry covered Class I rails as a transportation sector equity analyst for 16 years and is now Vice Chair of XPO Logistics, which has undergone a value-enhancing transformation. Ms. Atkins and Ms. Landry also possess additive expertise in areas such as compensation program structuring, financial forecasting and performance measurement, and executive leadership transitions.
• Shipper Relations and Human Capital Management Expertise – Nominee and CEO candidate Jim Barber, who previously served as UPS’ COO and ran its transportation networks, has a unique background as one of the country’s largest rail customers with vast knowledge of shippers’ needs. Mr. Barber, who began his career as a unionized driver, rose through the ranks of UPS to simultaneously lead reportable segments with 100,000+ employees, more than $25 billion in annual revenue and approximately $3.4 billion in annual EBIT. During his tenure, he also formed lasting and valuable relationships with unions while negotiating mutually beneficial labor agreements across North America and Europe.

The current Board, which is chaired by a long-serving member with a background as a movie theater chain CEO, recently impugned its credibility by calling the aforementioned individuals “inferior director nominees” who have “little board and safety experience.”² The Board further compromised its integrity by saying in the same shareholder communication that the “East Palestine incident was not due to bad management or inattention to safety,” despite the directors knowing the National Transportation Safety Board concluded the derailment was “100% preventable” and that the Company’s people on the ground “lacked the scientific background” to recommend what has been deemed an unnecessary toxic burn.³ This same Board is now also telling you it has selected the right CEO, the right COO (albeit the Company’s third in two-and-a-half years) and the right strategy (even though the resilience model has delivered worst-in-class results and is an outlier among Class I rails). With all of this in mind, hopefully it’s clear that the only credible path to actually reducing risk and shifting to a proven strategy is to elect ALL SEVEN members of the Shareholder Slate, so its proposed management team and plan have support from a majority of the Board.

Please know we do not use the term “risk” lightly. Contemplate the risk associated with maintaining a Board that recently cut an exceedingly costly, opaque deal with competitor Canadian Pacific Kansas City Limited (“CPKC”) to hire a new COO in the middle of a contest. In addition to agreeing to pay $25 million in cash, the Board gave up Norfolk Southern’s right of first refusal on significant intermodal volume moving to/from the Wylie Intermodal Terminal and across the Meridian Speedway, resulting in the loss of an exclusive strategic advantage for the Company and the opening up of increased competition from the growing CPKC-CSX partnership. Importantly, the Board also withdrew multi-year opposition to the CPKC-CSX alliance that is strengthening the capabilities and offerings of the Company’s Eastern competitor. Although Norfolk Southern refuses to disclose its highly irregular agreement with CPKC, we fear it agreed not to exercise its expiring purchase option on the strategically important Wylie Intermodal Terminal. The Board, of course, can prove us wrong any time it wants given that the window is open for the purchase option to be exercised. All of these recent concessions appear to have been made purely for self-preservation purposes, especially when considering that Norfolk Southern was still filing opposition papers with the Surface Transportation Board in the fourth quarter of last year. Moreover, despite the Board’s claims this month that the concessions are inconsequential, consider the Company’s previous position:

“The Meridian-Wylie Route represents a significant component of NS’s commercial and operational offerings to intermodal customers […] Preserving NS’s ability to meet its intermodal customers’ needs with competitive rates and services over that line is a primary focus for NS.”⁴

If the full Shareholder Slate is elected, it plans to have the Board protect the value of the Meridian Speedway assets for shareholders. This includes, but is not limited to, proposing that management exercise Norfolk Southern’s purchase option on the Wylie Intermodal Terminal and asserting the Company’s rights over any related trackage rights. Any undisclosed arrangements or verbal understandings as they relate to the acquisition of John Orr and related concessions will be challenged and defended for shareholders.

2. The Right Management at the Right Time

The Shareholder Slate will work to appoint Mr. Barber as CEO and Jamie Boychuk, former CSX EVP of Operations, as COO. This will mark the first time in a generation that Norfolk Southern has a CEO with an operational background. Additionally, this will mark the first time in Norfolk Southern’s history that Norfolk Southern has a COO with experience leading a network redesign and related PSR implementation. You can learn more in the appendices to this letter about their applicable experience and the irrefutable data underpinning their accomplishments as transportation operators.

Those of you who have heard from Mr. Barber know that he is a no-nonsense operator who is focused on delivering greater value for all of Norfolk Southern’s stakeholders, including shareholders, customers, labor regulators and communities. Mr. Barber knows what this will require based on his unique background as a major rail shipper and former Norfolk Southern customer during his days at UPS. He also has decades of experience negotiating lasting union agreements and maintaining the trust of regulators across the world. As you will continue to hear him say, delivering enhanced value for all stakeholders starts with providing safer and more reliable service. Improving Norfolk Southern’s worst-in-class Trip Plan Compliance, which currently stands at just 76.5% for the Merchandise vertical, is among his immediate priorities.⁵ The Company’s Manifest Trip Plan Compliance has dramatically lagged the Class I Average and the Surface Transportation Board’s 82% compliance target for years.⁶

It is important to note that Mr. Barber has publicly disclosed that he and Mr. Boychuk will seek an at-risk compensation model that is governed by tangible value creation rather than the arbitrary targets and discretionary milestones historically relied on at Norfolk Southern. In our view, the Board’s recent and reactionary tweaks to Norfolk Southern’s compensation model is far too little, far too late. Messrs. Barber and Boychuk have committed to forgoing the guaranteed cash compensation structure provided by the Board to the Company’s current CEO and COO. Their desire for the maximum amount of accountability further demonstrates that they are the right leaders to turn around Norfolk Southern.

3. The Right Plan at the Right Time

The Shareholder Slate and its recommended management team will implement a PSR-powered Scheduled Network. The PSR implementation will begin after new leadership takes steps that include conducting a listening tour, redesigning the network on paper and sharing a transformation timeline and intended output summary with all stakeholders. This methodical approach, which differs from previous PSR implementations, has been informed by Mr. Barber’s understanding of shippers’ expectations and Mr. Boychuk’s work with Messrs. Fahmy and Lamphere to assess learnings from past situations.

Under the Shareholder Slate’s plan, Norfolk Southern will spend approximately 24 months evolving from a marketing-led railroad to an operationally-led railroad by reducing assets, clearing up congestion and cutting down on excessive touch points. The outputs of this phase are expected to include improved service (reflected in a much higher Trip Plan Compliance rate), greater efficiency (reflected in a much lower Operating Ratio) and sustained safety (reflected in declines in severe derailments and the number of required reported accidents relative to total network activity). The third year of the plan will be focused on leveraging operational improvements and service enhancements to increase Norfolk Southern’s wallet share and target top-line growth, with a specific focus on the high-margin Merchandise vertical.

Despite Norfolk Southern’s recent hire of an executive who ran inherited PSR systems at Canadian National and CPKC, it is important to stress that the Board has confirmed its preferred strategy is unchanged.⁷ The Board wants to maintain Norfolk Southern’s existing network to run a resilience-focused model that deprioritizes scheduling principles and prioritizes having excess assets available in the event of unforeseen spikes in volume. The Board seems to maintain the unfounded belief that Norfolk Southern’s poor Trip Plan Compliance will not obstruct it from being a partner of choice if there is an unexpected freight boom. While shareholders wait, Norfolk Southern’s excess assets, bottle-necked network and unproven operating model remain structurally incompatible with true PSR.

With all of this said, you do not need to rely on our word. Please review Appendix A to see what institutional investors and respected financial analysts are saying about the Shareholder Slate and its proposed management and strategy.

In Closing

We appreciate your willingness to consider what the Shareholder Slate has to offer. To the extent you would like to review responses to the Board’s recent claims and representations, they are included in Appendix B. You can also evaluate all aspects of the Shareholder Slate’s analysis and strategy by viewing the 193-page presentation available at www.MoveNSCForward.com.

This is a once-in-a-generation opportunity for us, Norfolk Southern’s owners, to put in place the right slate of directors, the right management team and the right strategy – all at the right time. This is the best way to turn the page on a dark chapter and move Norfolk Southern forward.

Sincerely,

Frederick D. DiSanto Chairman and Chief Executive Officer Ancora Holdings Group LLC

James Chadwick President Ancora Alternatives LLC

APPENDIX A – SHAREHOLDER SLATE’S SUPPORT FROM INVESTORS AND ANALYSTS

A Sampling of Support from the Financial Community

“We believe the status quo at NSC will lead to continued underperformance of the railroad. We also believe that Board refreshment and Jim Barber’s and Jamie Boychuk’s leadership are essential for enhancing safety and for ensuring outstanding long-term achievements for the benefit of all NSC’s shareholders and other stakeholders.”

– EdgePoint Investment Group

“[W]e believe a change in management and refreshment of the board at NSC are warranted and could stimulate improved operations and thus equity performance. For these reasons, we intend to support the election of dissident nominees Betsy Atkins, James Barber, Jr., William Clyburn, Jr., Sameh Fahmy, John Kasich, Gilbert Lamphere, and Allison Landry.”

– Neuberger Berman

“Important from yesterday’s town hall was commentary that PSR implementation is going to be slower than what we saw at CSX given in our view changes to the regulatory environment and the proposed management team’s focus on the customer […] Overall, we view this plan as contrasting heavily against Norfolk’s Resilience Model and expect headcount reduction can be achieved on the back of attrition, in addition to head office cuts.”

– RBC Capital Markets note issued on April 19^th

“NSC’s activist campaign appears to have unanimous support from institutional investors.”

– Deutsche Bank Research note issued on April 15^th

“We see value in potential management change with Jim Barber as CEO and Jamie Boychuk as COO as proposed by the activist investor Ancora, especially given the historical margin underperformance of Norfolk Southern.”

– Barclays Equity Research note issued on March 25^th

APPENDIX B – SHAREHOLDER SLATE’S RESPONSES TO THE BOARD’S RECENT CONTENTIONS

The Case for Significant Change in the Boardroom

The Board’s Contention	The Reality
Norfolk Southern has delivered strong long-term returns for shareholders.	From the announcement of Alan Shaw as the next CEO through the start of our campaign, Norfolk Southern delivered negative shareholder returns and underperformed the Class I Railroad Median by 15.1%. Over the course of one year, three years and since the Company’s 2022 Investor Day (ending with the start of our campaign), Norfolk Southern has delivered negative shareholder returns and underperformed the Class I Railroad Median. Over every relevant long-term horizon, Norfolk Southern has consistently underperformed its Eastern competitor and the Class I Average in terms of revenue, EBIT and EPS growth and Operating Ratio. Norfolk Southern touts a cherrypicked five-year shareholder return metric with start and end dates disconnected from the Board’s relevant decision points. Mr. Shaw and Chair Amy Miles were not even in their leadership roles for more than 80% of this five-year period.
“Norfolk Southern’s board is an agent of change, advancing shareholders’ interests.”	Since the Board announced its intended promotion of Mr. Shaw to CEO, Norfolk Southern has only changed for the worse and shareholders have only suffered, as evidenced by an objective review of data: Negative shareholder returns Share price underperformance vs. all Class I peers Six straight quarters of missing analysts’ consensus EBIT Declines in carload volumes that outpace all Class I peers Worst-in-class Operating Ratio Worst-in-class Trip Plan Compliance (a.k.a. on-time delivery) Increased congestion within its network due to excess assets A preventable derailment that has cost $1.6 billion so far To date, 2024 has had four more headline-grabbing accidents Three COOs in two-and-a-half years Three VPs of Transportation in two-and-a-half years Despite reportedly conveying that it has support from unidentified passive investors, the Board has yet to receive any public support from an institutional shareholder. A recent note released by Deutsche Bank Research following one-on-one meetings with 90 investors in the freight and logistics space stated that “we have yet to find one investor that is planning to vote in favor of the current management, which reflects long-run frustration with NSC’s operating track record.”
“We expect to realize an operating ratio of 60% or lower in three to four years, assuming a market recovery and associated revenue growth in line with previous freight cycles.”	A recent under-the-radar change in Norfolk Southern’s Operating Ratio forecast suggests Q2 2024 results are now worse than what was communicated just a week earlier. Norfolk Southern issued a presentation with a projected first-half Operating Ratio of 66%-67% on April 10, and then the Company issued a revised presentation with a projected first-half Operating Ratio of 67%-68% on April 18. This change was made without any call-out or explanation. If the Board cannot oversee accurate and effectively disclosed Operating Ratio guidance related to the current reporting period, shareholders are unable to trust its Operating Ratio guidance for the years ahead. For more details, view “Another Instance of Impugned Credibility for Alan Shaw and His Board: A New OR Target.”
The Board has a “steadfast commitment to bringing in fresh ideas and diverse perspectives.”	When Board members heard the Shareholder Slate’s ideas about adopting a PSR strategy, as has been done by every other publicly traded Class I rail, they unanimously backed Mr. Shaw’s resilience-focused strategy.8 When Ancora offered Board members a chance to speak with Jim Barber and Jamie Boychuk about their experience and proposed strategy, they declined. When the Board decided to bring in John Orr as COO in the middle of this contest, it cut a costly and poorly disclosed deal with a competitor to hire an individual that previously worked under director Claude Mongeau (who just weeks earlier told us Paul Duncan was the right COO). Mr. Shaw and the Board seem to believe this hire is worth $25 million plus (i.) giving up right of first refusal on traffic coming from the Meridian Speedway & Terminal, (ii.) not committing to exercise the purchase right on the Wylie Intermodal Terminal and (iii.) dropping opposition to the CPKC and CSX alliance. In a note that mentioned CPKC and its CEO “look great on this trade,” Susquehanna Financial Group observed that Norfolk Southern’s reactionary hire of Mr. Orr “comes at a high near-term cost and very high potential long-term cost to the company for an operational leader that could prove short-lived beyond May 9’s shareholder meeting when the Ancora proxy fight comes to a head.”
The Shareholder Slate’s strategy has generated “concern among key constituents.”	Ancora has publicly disclosed its misgivings about Norfolk Southern using shareholders’ resources to manufacture concern from non-financial stakeholders, as can be seen in filings with the U.S. Securities and Exchange Commission, which can be accessed at www.sec.gov. Ancora publicly disclosed on February 22nd that it was aware that the Company’s private jets had been heading to Washington, D.C. with great frequency following the submission of a private nomination notice in November of 2023. According to publicly available lobbying disclosures, the Company has been represented by 41 lobbyists, who are tasked with engaging governmental bodies that include the Department of Transportation, Surface Transportation Board and Federal Railroad Administration.9 Nearly 80% of these lobbyists are considered ‘revolvers,’ meaning they previously worked at the very government entities they are now talking to on behalf of Mr. Shaw and Norfolk Southern.10   Norfolk Southern’s select union support, which parrots the Company’s talking points, is coming from the same sources management secured letters from when it sought to block an unsolicited acquisition offer in 2016.11 The Company appears to want shareholders to think that rail workers may strike, even though there is a long-term labor agreement in place (that the Shareholder Slate intends to honor in full) and strikes at individual companies are prohibited.   It appears that Norfolk Southern’s publicly supportive “influencers” in academia and at rail sector trade publications receive sponsorship fees and/or economic consideration from the Company and/or its advisors. Norfolk Southern appears to have previously sponsored content at the trade publications that have most aggressively attacked Ancora and supported Mr. Shaw.12 Norfolk Southern’s recent receipt of support from CPKC’s officers and directors stems from the rails’ economic agreement over Mr. Orr, including cash and strategic consideration going to CPKC.

Contacts

Longacre Square Partners

Greg Marose / Joe Germani, 646-386-0091

MoveNSCForward@longacresquare.com

D.F. King & Co., Inc.

Edward McCarthy

212-229-2634

MoveNSCForward@dfking.com

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