(The Associated Press circulated the following story by Dan Caterinicchia on March 4.)
WASHINGTON, D.C. — The CEO of CSX Corp. and a partner from the hedge fund seeking major changes in the railroad company’s management structure will share a witness table Wednesday on Capitol Hill.
The Children’s Investment Fund, a big shareholder that believes CSX is not performing as well as it should, wants to shake-up the company’s board, in part by making it easier for shareholders to propose the election of directors at special meetings.
But there are concerns in Congress that TCI’s activism could eventually lead to a takeover attempt. That unnerves lawmakers because of the critical infrastructure involved and the fact that hedge funds are not regulated by the Securities and Exchange Commission. TCI, which has a 4 percent stake in CSX, denies any interest in taking operational control.
CSX Chairman, President and Chief Executive Michael Ward and Snehal Amin, a partner at TCI, are among those scheduled to testify at 11 a.m. EST before the House subcommittee on railroads, pipelines and hazardous materials.
As railroad operators’ profits have soared in the last decade, so have the stakes being taken in them by assorted hedge funds and by billionaire investor Warren Buffett. Buffett’s company, Berkshire Hathaway, owns an 18 percent stake in the nation’s second-largest railroad Burlington Northern Santa Fe Corp. and a smaller slice of others.
Jacksonville, Fla.-based CSX, which last year reported more than $10 billion in revenue and posted fourth-quarter earnings that easily beat Wall Street estimates, bristles at TCI’s criticism. It argues that “special meetings” would simply allow TCI to pressure the board to implement its proposals.
But in a sign of how seriously it takes TCI’s overtures, CSX spent a total of $3.2 million last year to lobby the federal government on many issues, including legislation that would require hedge fund advisers to register with securities regulators, according to a disclosure form posted online last month.
If the London-based fund were to gain a controlling interest in CSX, the Committee on Foreign Investment in the United States under the Treasury Department could intervene assuming national security is deemed to be threatened, according to House subcommittee documents.
“It could disrupt service to many of its shippers and impose an unacceptable impact to the U.S. economy,” according to a memo prepared for Wednesday’s House hearing.
TCI in October asked CSX’s board to separate the roles of chairman and CEO, add new directors with railroad experience, present a plan to improve operations and more. The fund, along with 3G Capital Partners Ltd., own 8.3 percent of CSX’s outstanding shares and control derivative securities providing economic exposure to nearly 12 percent more. In December, they jointly nominated a minority slate of five directors to the board.
“Despite insinuations to the contrary, TCI is not seeking _ and has never sought _ control of CSX … only one of our nominees is from TCI,” fund spokesman Jonathan Gasthalter said Tuesday. “Together our nominees add over 50 years of railroad experience to the CSX board, where today not a single director has any railroad operating experience except for the chairman, who is also the resident and CEO.”
A spokesman for CSX did not return a call for comment Tuesday.
CSX is one of seven major railroads operating in North America. The others are: Union Pacific, Norfolk Southern, BNSF Railway, Canadian National, Canadian Pacific and Kansas City Southern.
Also scheduled to testify at the subcommittee hearing is Federal Railroad Administrator Joseph Boardman who declined requests Tuesday to share his thoughts on railroad investment during an unrelated conference call on safety issues.
A spokesman for Democrat Rep. Corrine Brown, who represents the district where CSX is based and chairs the subcommittee, did not immediately return a call for comment Tuesday afternoon.