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March 2008

Rail News: CSX Transportation

CSX and TCI — fueling the feud

CSX Corp. and the Children’s Investment Fund Management L.L.P. (TCI) traded more accusations last month after the Class I amended some of its bylaws to enable shareholders to request a special stockholders meeting.

In a letter to CSX’s board dated Feb. 7, TCI partner Snehal Amin said a “close reading” of the new provision shows it’s a “disingenuous effort” to appear to be shareholder friendly while preventing shareholders from nominating directors at a special meeting.

TCI — which owns 4.1 percent of CSX shares and has been openly critical of the Class I’s management and performance — late last year teamed up with 3G Capital Partners Ltd. to form a group owning about 11.8 percent of CSX shares. The group plans to nominate five directors with railroad experience to CSX’s board at the 2008 annual shareholders meeting.

“The bylaw amendments say that special meetings may not be called to address issues that were on the agenda at an annual meeting in the past 12 months or will be on the agenda at an annual meeting in the next 90 days,” Amin wrote. “Since the election of directors is on the agenda at every annual meeting, this means directors can never be proposed at a special meeting.”

TCI plans to propose a bylaw amendment that would permit one or more shareholders that together hold at least 15 percent of shares to request a special meeting to address any issue, including the election of directors. In addition, TCI will try to repeal all amendments enacted since Jan. 1, 2008.

In a rebuttal letter dated Feb. 7, CSX board members said the amendments reflect the board’s commitment to high corporate governance standards. Writing on behalf of the board, CSX Presiding Director Edward Kelly III said every CSX director stands for election each year and is subject to a majority voting standard that empowers shareholders to “vote out” a director, even in an uncontested election year.

“The recent bylaw amendments avoid the disruption and diversion of resources associated with the potential for multiple director elections each year,” he wrote.

The amendments strike an appropriate balance between giving a small minority of shareholders the ability to request special meetings and protecting all shareholders’ interests, CSX board members believe.

“TCI’s criticism of the bylaw amendments is both unwarranted and disingenuous,” Kelly wrote. “TCI wants the ability to initiate a perpetual ‘recall’ contest through special meetings as a tool to pressure the board to implement TCI’s proposals, regardless of their merit.”


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