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The latest volley in the ongoing CSX Corp./Children's Investment Fund L.L.C. (TCI) skirmish has been launched by CSX. Today, the Class I announced it filed a lawsuit against TCI and its investment partner 3G Capital Partners Ltd. in the U.S. District Court for the Southern District of New York claiming TCI/3G violated federal securities laws.
In December, TCI and 3G Capital Partners formed a group whose members own about 11.5 percent of CSX's outstanding common shares. The group has nominated five independent directors, who will stand for election at CSX's annual shareholders meeting later this year.
CSX alleges TCI and 3G Capital Partners violated Section 13(d) of the Securities Exchange Act of 1934. The Class I claims TCI employed swap agreements to evade Section 13(d) filing requirements. In addition, TCI's disclosures concerning the 11.5 percent share swap position are "materially misleading because they fail to disclose that, by virtue of agreements, understandings or relationships with TCI, swap counterparties intend to vote CSX shares in accordance with TCI's wishes," according to a CSX statement.
The railroad alleges that TCI's and 3G Capital Partners' disclosures concerning their formation of a Section 13(d) group are "false and misleading and, therefore, material information that the investing public should have regarding the group and its intentions with respect to the company is currently unavailable," CSX said.
"In an effort to avoid the disruption and expense of a proxy contest, we've spoken with TCI on a number of occasions in an attempt to find common ground," said Edward Kelly, presiding director of CSX's board. "Based on these conversations, the board concluded that TCI is not simply interested in having a representative voice on the board, but instead is seeking to achieve effective control of the CSX board and dictate company strategy."
TCI has criticized CSX's corporate governance and financial/operational performance, and urged the railroad separate the chairman and chief executive officer roles, install new independent directors, align management compensation with shareholders' interests, and develop a detailed plan to improve operations with specific long-term operational and cost targets.
Because CSX officials believe the "integrity of voting in its shares could be undermined by the violations of the TCI/3G group," the Class I has rescheduled this year's annual shareholder meeting to "provide adequate time for full and complete information to be made available to shareholders." Instead of a May date, the meeting will be held June 25 in New Orleans. The railroad now will use April 21 as the new record date for determining shareholders who are entitled to vote at the meeting.
"We filed this suit to ensure that all of our shareholders receive complete and accurate information about the group's holdings, agreements, plans and motivations to which they are entitled under federal securities laws," said CSX Chairman, President and CEO Michael Ward.
In a joint statement issued today, TCI and 3G Capital Partners officials said the allegations are "wholly without merit" and the firms plan to defend themselves.
"It's unfortunate that CSX has chosen to manipulate the governance and board election process by delaying the annual meeting and filing baseless claims, the firms said.
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