(Reuters circulated the following on July 16.)
CHICAGO — The “final outcome” of a contested shareholder vote at U.S. railroad CSX Corp. will depend on a court ruling later this summer on whether two hedge funds could vote all their shares, the company’s top official said on Wednesday.
“If the court rules that not all of those shares could be voted, that would have a major impact on the outcome,” Chief Executive Michael Ward told Reuters.
The vote last month came after a bitter six-month proxy battle between CSX and two hedge funds, the Children’s Investment Fund (TCI) and 3G Capital Partners. The funds have sought to replace five board members, claiming CSX has been underperforming.
For instance, TCI and 3G claim that while CSX has indicated its profits should double within the next five years, with improved network performance earnings could quadruple within the same period.
The hedge funds also claim they could achieve $2.2 billion in annual productivity gains within five years, compared to $400 million the company has targeted by 2010.
The railroad has maintained that the hedge funds would overload the company with debt and sued the two funds, arguing that they had not properly disclosed their holdings in the railroad.
Preliminary results from IVS, the independent inspector of the election, show that four of the five directors proposed by The Children’s Investment Fund (TCI) and 3G Capital Partners won enough votes to make it onto CSX’s 12-member board.
The four dissident nominees are Alexandre Behring, Christopher Hohn, Gilbert Lamphere and Timothy O’Toole.
In a statement TCI and 3G described the vote as a “great victory for all CSX shareholders.”
“Our newly elected directors are committed to working with their fellow Board members to make CSX the leading railroad in America,” the funds said.
CEO Ward said that the 2nd Circuit Court of Appeals of New York will begin hearings on whether TCI and 3G could vote all their shares on August 25.
A federal judge ruled in June that TCI and 3G had violated securities law by evading disclosure obligations but allowed them to vote all their shares.
Ward stressed that the company aims to cooperate fully with the board no matter who wins.
“We look forward to working with the board of directors whatever its composition,” he said.
Late Tuesday CSX reported a second-quarter profit in line with Wall Street forecasts and expects its full-year earnings to come in at the upper end of a previously stated range of $3.40 to $3.60 per share.
In trade on the New York Stock Exchange, CSX shares were up $3.80 at 6.56 percent at $61.69.