(Bloomberg News circulated the following story by Sree Vidya Bhaktavatsalam and Angela Greiling Keane on May 16.)
NEW YORK — Billionaire Carl Icahn bought a $122 million stake in CSX Corp., joining Warren Buffett and TCI Fund Management LLP in purchasing railroad shares.
Icahn held 2.68 million shares of Jacksonville, Florida- based CSX, the third-largest U.S. railroad, as of March 31, according to filings yesterday with the U.S. Securities and Exchange Commission. Buffett’s Berkshire Hathaway Inc. and hedge fund TCI also detailed their purchases in the industry, which they disclosed in the past month.
“The rail group has attracted a lot of attention in a year and a half that could’ve led to a lot of smart people looking into it,” Tony Hatch, an independent rail analyst based in New York, said yesterday in an interview. “This group has clearly changed in many ways and has been stronger about talking about how it’s changed.”
CSX and companies such as Union Pacific Corp. and Burlington Northern Sante Fe Corp. are benefiting from a tightening in rail capacity starting in 2003 and rising Asian import volume, Hatch said. Buffett, Berkshire Hathaway’s chairman, said earlier this month that higher fuel prices and deregulation are making rail carriers attractive investments.
“As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors — truckers — roughly by a factor of four,” Buffett, 76, said at the company’s May 5 annual meeting in Omaha, Nebraska.
Rail Experience
Icahn often uses his influence as a large investor to press for changes at companies that will boost share prices. Last year, he unsuccessfully pressured New York-based Time Warner Inc., the world’s largest media company, to break itself up. He was successful in pressing the company to buy back more stock, add new directors and pledge to cut costs by $1 billion over two years.
The New York-based investor didn’t return a phone call seeking comment. CSX spokesman Garrick Francis declined to comment.
Icahn is chairman of American Railcar Industries Inc., a Saint Charles, Missouri-based manufacturer of railroad tank cars and hoppers. His Icahn Associates Corp. owns 29 percent of the company, according to a data compiled by Bloomberg.
“He has known about the potential in this specific industry for some time,” Hatch said. “He’s someone who has known about the industry and could be investing like Buffett is. Or he could be saying, `Here’s a company where we already have some change-agent types, some provocateurs and I’m one and I could come in here and increase leverage and increase returns.”’
Shares Outperform
CSX’s shares have soared 33 percent this year, compared with the 5.8 percent increase by the Standard & Poor’s 500 Index. The S&P 500 Railroads Index has more than doubled since the end of 2002 and gained 23 percent so far in 2007.
Berkshire Hathaway last month disclosed an 11 percent stake in Fort Worth, Texas-based Burlington Northern, the second- largest U.S. railroad. In an SEC filing yesterday the company said it held 10.5 million shares of Omaha-based Union Pacific, the largest railroad in the U.S., and 6.36 million shares of Norfolk, Virginia-based Norfolk Southern Corp., the fourth- largest, as of March 31.
London-based TCI said earlier this month it was buying railroad stocks. It disclosed yesterday it held 17.8 million shares, or 4.1 percent, of CSX as of March 31. It also said it owned and 2.1 million shares of Union Pacific and 4.3 million shares of Norfolk Southern.
TCI wants the carriers to increase their debt, return more to shareholders, raise prices for their customers and improve operations.
“Across the sector, the resistance to change is pretty consistent,” TCI founding partner Snehal Amin said last week in an interview in New York. “Our sense is all of these management teams feel fairly entrenched. Up until now, they haven’t had shareholders who pushed them. They seem to feel they can blow us off or ignore us.”