Media Clips

Jacksonville Business Journal

July 16, 2008

Hedge funds get 4 of 5 candidates on CSX board
by Mark Szakony

JACKSONVILLE-- CSX Corp.'s board is in for a bumpy ride despite assurances from the railroad and two rival hedge funds they will work together to maximize profitability, a railroad analyst said.
"Everyone is human and the proxy fight between them has gotten ugly at times," said Lee Klaskow, a Longbow Research senior analyst.
Four out of five of the nominees put forth by The Children's Investment Fund Management LLP and 3G Capital Partners Ltd. have been voted in by shareholders, according to the independent inspector of the election's preliminary report. As reported, the vote is a sound defeat for CSX CEO Michael Ward and his managment group, which fought hard to convince shareholders to avoid the candidiates backed by the hedge funds.
Klaskow said the board changes won't change day-to-day operations, but they may affect long-term ones, as the hedge-fund-nominated members will likely make more aggressive proposals.
"I don't think it's going to be one [proposal] or the other but something in the middle," he said.
Within five years, the hedge funds have claimed they could gain $2.2 billion in annual productivity. CSX previously targeted $400 million in productivity by 2010. Klaskow said the hedge funds' projections weren't valid because it unfairly compared CSX to another railroad, Canadian National Railway Co.
It's unclear how some of the company's top shareholders -- including Citigroup Inc. and Deutche Bank AG -- voted.
Hanging over the results is CSX's appeal of U.S. District Court Judge Lewis Kaplan's ruling that he didn't have the authority to stop the hedge funds from voting some of their shares, despite having scolded them for failing to properly disclose that they had formed a shareholder group. The expedited appeal is expected to be heard Aug. 25.
CSX believes that if it wins the appeal, the hedge fund will have less than four of its nominees on the board. Before the final results are made, both sides have a chance to review and challenge the findings.
CSX spokesman Garrick Francis said it was premature to speculate on whether the company would attempt to block the new members from joining the board until the appeal was known. TCI was not available for comment.
There is also the chance that the two sides will engage in a legal battle, especially since the mechanics of proxy fight include a myriad of intermediaries and methods that are prone to inaccuracy, said Stephen Davis, project director of the Millstein Center for Corporate Governance and Performance at the Yale School of Management.
The legal question and the uncertainty of how the new personalities will function on the board leaves the board's fate uncertain, said Kent Hughes, Egan-Jones Proxy Services managing director.
"There was quite a bit of antagonism between them, so I think it will be interesting to see how they work together."