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Rail News: Financials

TCI teams up with 3G Capital Partners to boost CSX stake, nominate directors to Class I's board


The Children's Investment Fund Management L.L.P. (TCI), which has been critical of CSX Corp.'s management, performance and corporate governance, is increasing its stake in — and, the hedge fund hopes, its influence on — the Class I.

Today, TCI and 3G Capital Partners Ltd. announced they filed with the Securities and Exchange Commission to disclose their formation of a group whose members will own 8.3 percent of CSX's outstanding common shares. The group also will hold derivative securities "providing economic exposure equivalent to an additional 11.8 percent of CSX's outstanding shares," TCI officials said in a prepared statement. TCI currently owns 17.8 million, or 4.1 percent, of CSX shares.

The group plans to nominate five directors for election to CSX's board at the Class I’s 2008 annual shareholders meeting to "strengthen the board by adding strong independent directors with a shareholder orientation, a broad range of railroad and other relevant experience, and a firm commitment to improving CSX's operating performance and corporate governance," TCI said. The nominees are TCI founder Christopher Hohn, 3G Capital Managing Director Alexandre Behring, Lamphere Capital Management Managing Director Gilbert Lamphere, London Underground Managing Director Timothy O'Toole and Northwest Airlines Co-Chairman Gary Wilson.

"CSX's incumbent board has overseen a railroad that for many years has lagged its peers on many of the key metrics of operational and financial performance," said Hohn. "Rather than engage in a constructive dialogue with one of its largest shareholders, the CSX board has consistently ignored our substantive concerns and failed to hold management accountable for continuing operational underperformance. Our goal is a strong CSX that can provide the returns shareholders deserve, the service shippers demand, a safety record communities can count on and a working environment employees can be proud of."

In October, TCI sent letters to CSX's board stating they 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. A month later, CSX board members sent a letter to TCI expressing support of Chairman and Chief Executive Officer Michael Ward and his management team, and approving their efforts to boost the Class I's financial and operational performance.

CSX's board members and management team believe the railroad's current directors are well qualified to further advance the company's interests, according to a CSX statement released today. The Class I's "outstanding record of financial, safety and operational improvements" demonstrates CSX is a well-run company, they said.

"CSX has a strong board of directors with a broad range of experience," they stated. "This group of directors has driven the company's successes, including nearly tripling the stock price in the past three years, and provided shareholders a return better than the rest of the North American rail industry and 89 percent of all S&P companies."

Contact Progressive Railroading editorial staff.

More News from 12/19/2007