(The following story by Mark Basch appeared on the Florida Times-Union website on June 29, 2009.)
JACKSONVILLE, Fla. — CSX Corp.’s proxy fight with two hedge funds ended in September with four nominees from The Children’s Investment Fund Management LLP and 3G Capital Partners Ltd. winning election to CSX’s board.
But even though the fight is long over, it continues to be in the news.
Last week, Securities and Exchange Commission Chairwoman Mary Schapiro told a U.S. Senate subcommittee that the commission is considering new disclosure rules on equity swap arrangements. According to a Bloomberg News story, the SEC’s examination of equity swaps is a direct result of CSX’s battle with TCI and 3G.
TCI and 3G combined owned 8.7 percent of CSX’s shares. But CSX alleged in court filings that the two hedge funds controlled another 12.3 percent of the company’s stock through equity swap agreements, in which TCI and 3G received financial benefits from shares owned by other investment firms.
CSX argued that even though the funds didn’t own those shares outright, the funds should have been required to disclose their interest in the shares through the equity swaps.
Advocates of stronger rules on equity swaps say the arrangements allow investors to quietly gain control of a large block of shares in a company without having to disclose it.
SEC rules requiring disclosure of equity swap agreements would end that practice.
In the CSX case, U.S. District Judge Lewis Kaplan did agree that the funds should have disclosed the equity swaps.
But he said he didn’t have the authority to keep the funds from voting all of their shares in the proxy fight, as CSX had requested.