(The following story by Mark Basch appeared on The Florida Times-Union website on July 26.)
JACKSONVILLE, Fla. — CSX Corp. announced Friday that it will immediately seat two nominees of a dissident shareholder group to its board of directors. But two other candidates will have to wait.
An independent auditor reported last week that four nominees of The Children’s Investment Fund Management LLP and 3G Capital Partners Ltd. won election to CSX’s 12-member board, according to preliminary results. But at a shareholders meeting Friday at CSX’s Jacksonville headquarters, Chairman and CEO Michael Ward said the election of two of those nominees is still too close to confirm.
“CSX has identified a sufficient number of questionable votes,” he said.
Besides seeking confirmation of the vote by independent inspector IVS Associates Inc., CSX is also challenging the legality of some of the TCI and 3G votes in a court case that is pending at the U.S. Court of Appeals for the 2nd Circuit.
Ward said after the meeting that one of the TCI/3G nominees could end up losing once IVS determines the final vote tally. And he said a second could lose if the appellate court rules in CSX’s favor.
The two nominees in question are TCI managing partner Chris Hohn and former Conrail CEO Tim O’Toole.
In the meantime, CSX has invited 3G managing director Alex Behring and former railroad executive Gil Lamphere, another TCI/3G nominee, to join the board immediately. They have enough votes regardless of the IVS review or the court’s decision.
Also being seated now is former Florida East Coast Railway President John McPherson, who was nominated by CSX to the board for the first time.
Existing board members Elizabeth Bailey and Robert Kunisch, who were both up for re-election, are resigning, the company said.
Daniel Schwartz, a 3G partner, attended the shareholders meeting but said he could not comment on CSX’s action. TCI and 3G issued a statement later on Friday saying “we are deeply troubled by CSX’s stated intention not to seat all elected directors upon certification.”
“This latest tactic should be seen for what it is – a cynical attempt to thwart the expressed will of CSX shareholders,” it said.
The proxy votes were originally collected at CSX’s shareholders meeting June 25 in New Orleans. That meeting was adjourned and continued until Friday to give IVS a chance to complete its tally of the votes.
CSX adjourned the very brief meeting on Friday and continued it until Sept. 24. But Ward said the company hopes to have the final vote totals “possibly as early as next week.”
But the court battle will continue. CSX filed a federal lawsuit in March seeking to block TCI and 3G from voting all of their shares at the stockholders meeting, citing violations of securities disclosure laws. Although U.S. District Judge Lewis Kaplan ruled that they did violate disclosure laws, he said he did not have the authority to prevent the funds from voting their shares. CSX appealed that decision.
A hearing on the case is scheduled for Aug. 25, and CSX has asked for an expedited ruling.
Ellen Fitzsimmons, CSX senior vice president for law and public affairs, said the new board may have a teleconference meeting but won’t meet in person until after the court hearing. She said the company does not announce the dates of its board meetings.
Ward repeated on Friday his view that the months-long proxy fight has not affected the railroad’s operations. He pointed to last week’s report that second-quarter earnings per share rose 25 percent.
“I think we’re keeping our focus very well,” he said.