(Dow Jones Newswires circulated the following story by Martin Vaughan on March 5.)
WASHINGTON, D.C. —The Children’s Investment Fund, the activist hedge fund that is seeking to shake up the management structure at CSX Corp. (CSX), defended its campaign before a House panel Wednesday.
Snehal Amin, a TCI partner, said the minority-stake investor hopes only to improve CSX performance, which he said was lackluster. He came under fire from members of the House Railroads, Pipelines and Hazardous Materials Subcommittee over TCI’s intentions with respect to CSX.
“CSX has the potential to be best railroad in the world,” said Amin. “Instead today, it is average or below average on nearly every metric of performance.”
TCI has argued for increasing fees to railroad customers, holding down capital expenditures and leveraging debt to create a greater return on rail assets. But Amin told skeptical members of the House panel that such changes would not come at the expense of safety or rail efficiency.
“We have never, and nor would we ever, suggest that railroads cut any spending for maintenance or safety,” said Amin. He told the panel TCI has advocated freezing capital expenditures only with respect to expanding rail capacity, while the prospect of legislation to re-regulate the railroad sector continues to create uncertainty in the market.
CSX CEO Michael Ward responded that an investment freeze will undermine shareholder value over the long-term. “Anyone who understands the transportation industry knows we need to maintain and even increase our investments,” he said.
TCI wants to split up the functions of chief executive and chairman of the board, and win shareholder support for its own slate of five directors to the 12-member board.
Several lawmakers on the panel appeared to side with CSX management in the struggle for control, voicing worry that TCI will force changes that would put profit before the public interest in a vibrant market for rail services.
Rep. Elijah Cummings, D-Md., said TCF is “known for aggressive tactics to maximize shareholder value, even to the detriment of the long-term health of the concern. “Decreased capital investment and a decline in creditworthiness will not allow CSX to do its duty,” Cummings said.
Despite grumbling from lawmakers about what they said were heavy-handed tactics by TCI, it is unclear how or whether Congress will wade into the power struggle with legislation. Asked by a reporter what CSX thinks Congress should do, Ward said the company is looking only for “better visibility of what the intentions are of this group.”
Charles Nottingham, chairman of the Surface Transportation Board, told the panel that the board will act aggressively against any railroad that violates its common carrier obligations, regardless of who owns the railroad.
But Nottingham said the STB doesn’t need any new authority from Congress to review whether investments in U.S. railroads would threaten those obligations.
He warned lawmakers against action that would discourage either foreign or U.S.-based investment in rail infrastructure, given the need for capital improvements over the next 20 years.
“Let’s be cautious about sending too many signals to investors that they’re not wanted, because we haven’t seen any problems yet. We need more investment from everywhere we can get it,” he said.
Amin stressed repeatedly that TCI has no plans to acquire a controlling stake in CSX, and said the fund is focused on governance changes.
“We’re not trying to manage the railroad. We’re adding 50 years of railroad experience to a board that has no railroad experience,” he said.
CSX’s Ward said that the soaring value of the company’s shares are the best proof that the firm is above “average,” and that the market has faith in the current management. Shares of CSX are up more than 12% this year and have risen nearly 37% over the last 12 months, although shares have slipped about 7.2% since reaching a 52-week high last week. The stock closed Wednesday at $49.49, up .1% for the day.
CSX has also sought to parry TCI with a raft of shareholder-friendly measures, including a $3 billion share-buyback program. Ward told Dow Jones these actions should not be cause for worry from those holding CSX debt, however. “We will keep our investment-grade rating, we’re very focused on that,” he said.