What happened

Shares of railroad giant CSX Corporation (NASDAQ:CSX) shot through the roof in mid-January after headlines announced rumors of growing interest in the company from activist investor and former CEO of Canadian Pacific Railway (NYSE:CP) Hunter Harrison. CSX ended January with hefty 29% gains.

So what

Activist investment isn't anything new, but CSX's is an interesting case. To begin with, Harrison suddenly stepped down as CEO of Canadian Pacific last month. The Wall Street Journal reported that he had quit the company to team up with another activist investor, Paul Hilal, to target CSX and gain representation on its board of management. Investors in CSX may remember that Harrison had even made a friendly takeover offer to CSX last year in his capacity as Canadian Pacific's CEO. Yes, Harrison has been eyeing CSX for quite some time now.

A freight train on a railroad.

Image source: Getty Images.

As investor activism is usually deemed to unlock greater shareholder value, investors were quick to jump on the CSX bandwagon on the rumors. Also, the fact that Harrison played a phenomenal role in turning Canadian National Railway's fortunes around before taking over at Canadian Pacific could have further fueled CSX investors' hopes. CSX, after all, has been facing considerable pressure on its top and bottom lines -- for full-year 2016, it reported 6% and 13% declines in revenue and net income, respectively, and an operating ratio of 69.4% in 2016. Just to give you an idea, Canadian Pacific's 2016 operating ratio came in at only 58.6%. A lower ratio indicates higher efficiency.

Now what

CSX and the activist investors are reportedly already in talks of a potential deal, so there might be some development in the near future. Harrison's entry could be positive for CSX given his track record and the fact that CSX is among the least efficient railroads in the industry today, which is exactly the kind of weakness an industry expert and activist investor like Harrison can work from. Make no mistake: There's no guarantee yet that Harrison will join CSX, or that he will be able to improve the railroad's performance if he does. It's a wait-and-see situation for now.

Neha Chamaria has no position in any stocks mentioned. The Motley Fool recommends CSX. The Motley Fool has a disclosure policy.