CSX Corp. announced yesterday that it plans to acquire all the outstanding shares of the Carolina, Clinchfield & Ohio Railway Co. in a $21 million stock exchange transaction.

The news sparked a surge in CC&O trading on the New York Stock Exchange, where it was the day's biggest percentage gainer, climbing $20 to $81.

At the same time, the Richmond-based transportation company announced a new line-up of the top corporate management, prompted by the upcoming May 1 retirement of Chairman Prime F. Osborn.

CSX President Hays T. Watkins will become chairman and chief executive officer. A. Paul Funkhouser, now president of CSX's Family Lines Rail System subsidiary, will succeed Watkins as president. Succeeding Funkhouser will be Richard D. Sanborn, a Family Lines executive.

The merger proposal for the CC&O Railway must be approved by CC&O shareholders, as well as by the Interstate Commerce Commission and other government agencies.

CC&O has no active operations, but owns land and railroad trackage that has been leased to CSX subsidiaries since 1923 under a 999-year lease. Rental payments for the line that runs from Elkhorn City, Ky., to Spartanburg, S.C., amounted to $5 per share and were paid out as dividends to CC&O shareholders.

Under the merger proposal, CSX will exchange a new class of CSX convertible preferred stock for all of the 250,000 outstanding CC&O shares. The new stock would bear an annual dividend of $7 a share and each would be convertible into two shares of CSX common stock. Under this formula, the merger will increase CSX common shares by only 1.1 percent, CSX officials said.