(The following article by Michael J. de la Merced appeared on the New York Times website on November 17.)
NEW YORK — Directors at CSX, the railroad operator, publicly supported management Friday and rebutted criticisms by a hedge fund that the company had overspent and failed to match its peers’ performance.
In its letter to the hedge fund, T.C.I., the board of CSX said that it had considered but rejected recommendations made public last month, including adding directors with railroad experience and cutting back on operational spending. The board said it had also rejected previous suggestions from T.C.I., which included a management-led buyout and a leveraged recapitalization.
“The board respects T.C.I.’s right as a shareholder to express its opinions regarding CSX and will continue to keep an open mind,” the directors wrote. “However, the board believes that the approaches T.C.I. has offered are not in the best interests of CSX shareholders and, in some cases, have damaged the industry.”
The board’s response to the Children’s Investment Fund could be the start of a long battle between old industry and high finance. And in the hedge fund, based in London and known as T.C.I., CSX may have found a persistent opponent.
The fund took on ABN Amro this spring, demanding a breakup or a sale of the Dutch banking giant. ABN Amro agreed to sell itself this month to a consortium of banks for $101 billion.
T.C.I. owns 17.8 million shares, or 4.23 percent, of CSX.
The hedge fund said in a statement Friday: “The failure of the CSX board to address in any way the dramatic financial and operational performance of CSX versus its peers reveals a disturbing complacency that should be of serious concern to all CSX shareholders.”
Last month, the fund said that it had unsuccessfully tried to meet with CSX’s board and management over the last year. But in its letter, CSX’s board said the company had “dozens” of phone calls, e-mail messages and meetings with the fund. A T.C.I. partner, Snehal Amin, also met with company executives earlier this year, the board said.
But T.C.I. previously said that meeting was with CSX’s chief financial officer, Oscar Munoz, who was there in “listen-only” mode. A person close to the fund said the previous exchanges with CSX were with its investor relations staff.
At issue is CSX’s performance under its chairman and chief executive, Michael J. Ward. CSX’s stock has risen more than 26 percent this year. Last month, it reported third-quarter profit of $407 million, up from $328 million in the period a year ago.
In its letter, directors said CSX had shown gains in several measurements like operating income. Personal injuries and train accidents also declined during Mr. Ward’s tenure.
But the hedge fund argues that CSX overspends on operations relative to its peers and that its gains have been impressive because it is recovering from years of poor management.
Several analysts did not dispute that CSX was improving after years of mistakes, including flawed investments and mismanagement of the acquisition of half of Conrail, a rival. The company has indeed made gains under Mr. Ward, the analysts said.
Anthony B. Hatch, an independent railroad analyst, said that under Mr. Ward, the company had finally stuck with a single strategy, called the One Plan, instead of trying different tactics.
But T.C.I. argues that the company could do more to speed that strategy. It also criticized Mr. Ward’s pay as excessive; he earned $13.8 million last year. It urged the railroad to be more receptive to shareholder concerns and split the positions of chairman and chief executive.
CSX’s board defended Mr. Ward’s compensation as fair and appropriately tied to company performance. It also noted that shareholders last year rejected a proposal to split the chairman and chief executive positions.