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UPDATE 1-US says Norfolk Southern must focus on safety despite investor activism

(Adds Norfolk Southern comment, no immediate comment from investor group)

By David Shepardson

WASHINGTON, Feb 21 (Reuters) - The head of the Federal Railroad Administration on Wednesday urged Norfolk Southern to focus on safety after a group of activist investors proposed replacing the company's top management.

FRA Administrator Amit Bose wrote CEO Alan Shaw to "reiterate the only avenue to ensure NS’s immediate and long-term success is through a relentless focus on safety ... Any backsliding, as a result of a change in leadership or otherwise, on the safety-oriented path you have laid out and communicated to us will likely attract renewed oversight attention from my office."

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A Norfolk Southern spokesperson said the letter "speaks for itself."

A group of investors led by Ancora Holdings on Tuesday said it had proposed replacing Shaw and nominated eight directors to the railroad operator's board.

Ancora did not immediately respond to a request for comment on the letter.

The investor group, which holds a "large equity stake" in the company, aims to replace CEO Alan Shaw with former United Parcel Service executive Jim Barber and COO Paul Duncan with Jamie Boychuk, a former CSX Corp executive.

Shares of Norfolk had lost nearly 5% in 2023 amid operating challenges and the fallout from a costly February 2023 derailment in East Palestine, Ohio, which invited scrutiny from the FRA. Shares were up 1.5% Wednesday.

The FRA said in August Norfolk Southern needed "significant improvements" in its safety culture after the Ohio derailment.

Bose on Wednesday praised Shaw's "commitment to investing in safety" and said "those investments are imperative for continuing the unique progress your railroad has made."

He said data for the first 11 months of 2023 suggested Norfolk Southern was the only major "railroad to achieve significant reductions in the rate of mainline derailments" last year.

The Wall Street Journal reported late last month that the Ancora-led group had taken a roughly $1 billion stake in Norfolk Southern and had nominated a majority slate of directors. (Reporting by David Shepardson Editing by Chris Reese and Michael Perry)