(Reuters circulated the following story by Dane Hamilton on June 11.)
NEW YORK — At least five major stockholders in CSX Corp. have thrown their support behind a dissident board slate at the railroad company, suggesting the campaign has a reasonable chance of success, according to sources familiar with the matter.
But much depends on a court case pending in Manhattan federal court brought by CSX against the dissidents leading the campaign, including the hedge funds Children’s Investment Fund (TCI) and 3G Capital Partners, observers said.
The opinion of proxy adviser RiskMetrics is also expected to hold significant sway over how CSX shareholders vote.
A decision in the court case and the RiskMetrics recommendations are expected in coming days. CSX’s annual meeting is set for June 25. The dissidents are pushing to have a slate of five nominees elected to CSX’s 12-member board.
The funds supporting the dissidents include Egerton Capital, a British fund that held 3.3 million CSX shares as of March 31, and TPG Axon Capital Management, a hedge fund that holds 9.7 million shares, the sources said.
Three other major shareholders holding 14.2 million shares are also supporting the dissidents, the sources said.
None of the funds would publicly disclose their intentions.
Together with the 8.7 million CSX shares held by TCI and 3G, the funds named by the sources as supporting the dissidents hold a stake of more than 15.5 percent in the company, according to regulatory filings.
The TCI-3G group also holds swaps worth an additional 12.3 percent, but the funds do not have the right to vote those underlying shares.
Fund managers supporting the dissidents argued this week that CSX could benefit from having new board directors, particularly those with railroad experience.
The dissident director slate includes Gil Lamphere, former director of Canadian National Railway and chairman of Illinois Central Railroad, and Timothy O’Toole, former president and CEO of Conrail.
“The slate they (TCI and 3G) are proposing has more experience in the railroad business than the incumbents and a proven track record,” said one fund manager, who asked to remain unnamed because his firm does not publicly disclose its views.
Another fund manager agreed, noting that the dissidents are not demanding major changes in strategy and would not have control of the board.
“Having a few new executives on the board with railroad experience would be helpful,” said one fund manager, who asked to remain anonymous. “If they were asking for a radical departure in strategy, I would not vote for it.”
CSX has argued that shareholders should re-elect its “experienced and highly qualified directors and support the board’s efforts to create additional value,” according to a June 3 letter to shareholders.
CSX shares were down $1.93, or 2.9 percent, to $64.34 in afternoon trade on the New York Stock Exchange.