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11/16/2007



Rail News: CSX Transportation

CSX's board sends letter to TCI stating support for senior management and praise for company's performance



It took more than four weeks to collect their thoughts, but CSX Corp. board members today sent a letter to The Children's Investment Fund Management L.L.P. (TCI) countering senior management criticisms and a call for corporate governance reforms TCI outlined in letters sent to CSX's board Oct. 16 and 22.

TCI, which owns 17.8 million, or 4.1 percent, of CSX shares, stated the board should separate the chairman and chief executive officer roles; install new independent directors; amend CSX bylaws to allow shareholders to request special meetings; align management compensation with shareholders' interests; present a detailed plan to improve operations with specific long-term operational and cost targets; justify the railroad's 2007-2010 capital spending plan; and improve relations with labor, shippers and shareholders.

In their letter, CSX board members expressed support for Chairman and CEO Michael Ward and his and management team, and approved their efforts to "deliver shareholder value."

Since the management team took charge in 2004, CSX's surface transportation operating income has nearly doubled, revenue has risen, productivity, safety and customer service have improved, and the company has attained its best operating ratio in a decade, the letter states. In addition, CSX's stock price has gone up nearly 150 percent and shares have "significantly outperformed" all major North American railroads, board members said.

"The board believes this performance record demonstrates unequivocally that CSX is a well-run company with continuously improving results," the letter states. "Be assured that the board constantly challenges the CSX management team to improve the company's performance."

During past ten months, TCI officials have approached CSX senior managers with a "variety of suggestions and demands," such as seeking a leveraged buy out, leveraging the company to "junk" credit status to fund share repurchases, doubling rates over the next 10 years and freezing capital spending until Congress determines the outcome to the "re-regulation" issue, board members said.

"The board is always receptive to ideas from shareholders ... [and] respects TCI's right as a shareholder to express its opinions regarding CSX, and will continue to keep an open mind," the letter states. "However, the board believes that the approaches TCI has offered are not in the best interest of CSX shareholders and, in some cases, have damaged the industry."


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