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4/30/2008



Rail News: Rail Industry Trends

CSX letter urges shareholders to re-elect directors; TCI/3G white paper states case for CSX board change


While CSX Corp. mails out proxy materials today for the annual shareholders meeting on June 25 urging stockholders to not to vote for The Children's Investment Fund L.L.P's (TCI) board nominees, TCI and 3G Capital Partners Ltd. are releasing a 79-page white paper that criticizes CSX's corporate governance and operational performance.

In December, TCI and 3G formed a group whose members now own about 8.7 percent of CSX's outstanding common shares and derivative non-voting securities totaling an additional 12.3 percent of outstanding shares. The group has nominated five independent directors for election to CSX's board.

In a letter to shareholders, CSX Chairman, President and Chief Executive Officer Michael Ward states that CSX's board recommends the re-election of the company's "experienced and highly qualified directors."

"Based on the company's discussions with TCI over the last 16 months, your board has become convinced that TCI's campaign threatens to undermine shareholder value," Ward wrote.

TCI's interactions with CSX since late 2006 "demonstrate a history of unsound ideas," such as pursuing a leveraged buyout at a takeover price of $50 per share, incurring "significant" additional debt to make major share repurchases that would have resulted in debt with "junk bond" ratings, implementing "aggressive" customer strategies that ignore railroads' regulatory environment and the realities of the transportation marketplace and freezing expansion capital investment, said Ward.

"CSX has delivered industry leading returns over the past one, three and five years, yet TCI refuses to acknowledge the value that CSX is creating for its shareholders," he wrote. "Instead, TCI has offered an endless stream of ill-conceived ideas, which we believe are not in the best interests of CSX and its shareholders."

TCI and 3G officials disagree, and issued the white paper (entitled "CSX: The Case for Change") to address what they believe are four critical questions regarding CSX's corporate governance and operational performance:
• Is the incumbent CSX board capable of holding management accountable?
• Is the incumbent board working for shareholders or for management?
• Why does CSX lag peers on key operational metrics?
• Why is CSX only half as profitable as Canadian National?

The white paper also highlights productivity opportunities, which TCI and 3G officials believe can add another $2.2 billion to CSX's annual earnings power within five years.

We are focused on asking not 'Where has CSX come from?' but rather 'Where should CSX be?'" said TCI partner Snehal Amin in a prepared statement. "CSX today is one of the least productive of the major railroads, but our analysis reveals that there is no structural reason CSX cannot be the most productive railroad in America."


Contact Progressive Railroading editorial staff.

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