Union Pacific Plans to Name New CEO This Year

Union Pacific said in a statement that its board is focused on finding “highly-qualified candidates both within the industry and adjacent industries.” Among its considerations are a track record of success in safety and operational matters, the company said, crediting Mr. Fritz with achieving financial growth in difficult conditions.

Soroban argues that Union Pacific, the largest freight-railroad operator in the U.S. with a market capitalization of nearly $120 billion, had ranked worst in key operating metrics including safety, volume growth and total shareholder return during Mr. Fritz’s eight-year tenure, despite the strength of its network. The Omaha, Neb., railroad’s returns to shareholders, including dividends, are the worst on a percentage basis among so-called Class 1 freight railroad operators in that period, according to FactSet.

“We want UNP to prosper,” Soroban founder

Eric Mandelblatt

wrote. “Unlike typical shareholder engagements which come with numerous demands, Soroban has only one ask: install new leadership who can get the trains to operate safely and on time.”

Soroban is a longtime Union Pacific investor, one of the company’s biggest shareholders with a 1%-plus stake valued at about $1.6 billion.

Union Pacific said it decided to disclose its expected timing for the leadership change after Soroban advised the company recently that it intended to make its concerns public.

The railroad operator said it first engaged with an outside consultant and formed a task force among its directors last year to help identify successors for Mr. Fritz, 60 years old, following conversations between him and the board.

Soroban is pushing for railroad veteran

Jim Vena,

64, Union Pacific’s chief operating officer from 2019 to 2020, to take the top post. Soroban believes the company’s stock price could double in two years under Mr. Vena, given his operational experience in the industry, said the letter.

Mr. Vena said he would be open to a conversation with Union Pacific about taking the CEO role and expressed admiration for the company. “Union Pacific has a chance to be the best in the industry,” he said.

Soroban’s letter said the fund for years, including most recently in August, had privately expressed its unhappiness with the company’s performance. Soroban has told the board that quick action must be taken so that Union Pacific can take advantage of trends the investor believes are converging to benefit railroads, including renewed investment in domestic manufacturing and efforts to reduce carbon emissions.

Soroban is “completely committed to seeing that these changes be expeditiously implemented,” the letter said.

In January, Union Pacific reported fourth-quarter profit and revenue that fell short of Wall Street’s expectations, with labor shortages, inflation and extreme winter weather weighing on growth. Union Pacific and other U.S. railroad operators have issued tepid outlooks for 2023 in the face of more muted demand for manufactured goods among other products, as well as higher costs.

Union Pacific also has drawn scrutiny from the Surface Transportation Board, the regulator overseeing U.S. freight railroads. The STB in December held a hearing singling out Union Pacific’s soaring use of embargoes—restrictions that rail operators place on the amount of cargo that can be transported—that the regulator said had sparked complaints from shippers and worsened supply-chain issues.

Soroban’s public push for change is unusual. The hedge fund takes concentrated stakes and in recent years has focused on big technology companies and, more recently, commodities investments. But it has rarely held an activist position since its 2010 founding.

Mr. Mandelblatt, 47, got his start on Wall Street as an energy analyst for Goldman Sachs Group Inc. in the 1990s and has invested in railroads since 2005. Soroban has been invested in Union Pacific since 2016 and is a major shareholder at CSX Corp. It has also invested in Norfolk Southern Corp.

Soroban’s push comes at a time of increased activism as beaten-down share prices embolden the investors.

Salesforce Inc.

and

Walt Disney Co.

have both attracted multiple activists, although earlier this month Nelson Peltz’s Trian Fund Management LP called off its proxy contest at the entertainment company after Disney unveiled a reorganization and cost-cutting plan. Dan Loeb’s Third Point LLC also plans to launch a proxy fight against

Bath & Body Works Inc.

Write to Juliet Chung at Juliet.Chung@wsj.com and Lauren Thomas at lauren.thomas@wsj.com