NEW YORK (AP) - Freight railroad operator CSX Corp. and dissident
shareholders laid out their cases to a prominent advisory firm Monday, as they
prepare for a proxy fight and reiterate their differing plans for the railroad's
future.
In a forum mediated by RiskMetrics, CSX Chairman, President and Chief
Executive Michael Ward once again urged shareholders to reject the slate of new
directors proposed by two activist hedge funds -- TCI, which manages The
Children's Investment Master Fund, and 3G Capital.
The funds jointly nominated a minority board slate of five directors in
December. The CSX board currently has 12 seats.
Ward underlined the stock's strong performance in the first quarter and said
the company's margins are currently the best among U.S. class I railroads.
Presiding Director Edward J. Kelly said the railroad has grown increasingly
efficient since Ward was hired in 2003, and "began to improve well before TCI
came in." He also argued that TCI's suggestions require an overly aggressive
financial policy that would put the company's debt ratings at risk.
Kelly also suggested that CSX believes the hedge funds are interested in a
possible leveraged buyout.
But TCI Founder Chris Hohn denied the claim, and said the executives at CSX
"acted as if we are a corporate raider rather than a concerned investor."
He said the investment firm wants to see CSX make further operational
improvements, and is looking to improve the board by replacing current members
with little or no railroad experience.
"If we were just looking to make a quick buck, we would have left CSX a long
time ago," he said.
Both parties said negotiations stalled in January when they could not agree
on a proposal that would place three members of TCI's choosing and one mutually
decided member on the board.
Lee Klaskow, a transportation analyst with investment firm Longbow Research,
said in a telephone interview he believes the likelihood of TCI winning all of
the five board seats they seek is slim. He said shareholders might elect some of
the slate TCI proposes, but predicted the independent directors are more likely
to be elected than the choices associated with the hedge funds -- including Hohn
and 3G Managing Director Alexandre Behring.
The other three TCI nominees are Gilbert Lamphere, managing director of
private investment firm Lamphere Capital Management and a former director at
Canadian National Railway Co.; Timothy O'Toole, managing director of the London
Underground, and Gary Wilson, a former chairman at Northwest Airlines Corp.
Overall, Klaskow said he believes institutional investors are happy with the
performance of CSX's management team, and "have been a lot happier over the last
12 months" as the stock has jumped about 45 percent and operations have
improved.
"You have to give management credit for the railroad's performance over that
period," he said. "But it would naive to say that (the hedge funds) didn't have
an effect ... they contributed."
Klaskow said if TCI fails to convince shareholders to elect any of their
hand-picked directors, the stock might slip in the short term as other investors
pull back.
The analyst said he would recommend the Neutral-rated stock to investors if
shares become less expensive.
And while the hedge fund's effect on CSX's performance is still unclear,
Klaskow noted there might be positives if some new board members are voted in.
"It wouldn't be the worst thing -- new ideas are always good," Klaskow said.
"There is something to be said for new blood."
Shareholders will elect board members at CSX's annual meeting on June 25 in
New Orleans.
CSX shares gained $1.48, or 2.3 percent, to close Monday's trading at
$66.89.
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