(The following story by Timothy J. Gibbons appeared on The Florida Times-Union website on May 18.)
JACKSONVILLE, Fla. — Jacksonville-based railroad CSX Corp. is attracting more attention from activist investors, with filings with the Security and Exchange Commission revealing that billionaire Carl Icahn purchased 2.6 million of the company’s shares.
That purchase – of 0.6 percent of the company’s outstanding shares – comes on the heels of a British hedge fund called The Children’s Investment Fund Management announcing it planned to buy more than $500 million worth of CSX stock.
Both of those entities are known for trying, successfully or not, to use their stakes to push for change in the companies they own: Icahn attempted last year to get Time Warner to break itself up, while TCI – the hedge fund dubbed by BusinessWeek as being at the forefront of “restless shareholders” – managed to get Dutch bank ABN Amro to put itself on the block.
Last week, the founding partner of TCI told Bloomberg News he had met with CSX executives several times in an attempt to improve the company’s performance by things such as increasing debt levels and raising prices, but was not satisfied with the result of the conversations.
The involvement of such investors might be good from the stock standpoint, according to analysts who follow the transportation sector, but might create problems for other stakeholders of companies like CSX.
“It wouldn’t worry me from an investor standpoint,” said Tim Cebulko, partner at St. Nicholas Private Asset Management in Jacksonville, which recommends CSX to its clients. “From an employee standpoint, it very well might.”
But the company isn’t worried, company spokesman Gary Sease said Wednesday, but is instead focused on shareholder friendly activities such as buying back stock, increasing its dividend and investing in its infrastructure. “At the end of the day, what all shareholders want is value,” Sease said.
It’s unclear how much of Icahn’s stake, worth $124.2 million at Wednesday’s closing price of $46.40 a share, was assembled recently: According to a July 2000 article in industry publication Railroad Age, the investor was looking to buy 15 percent of the company, although it’s not evident if he followed through on that plan. Calls to Icahn’s New York office Wednesday afternoon were not returned.
CSX officials say that he has long had a stake in the company, although they would not provide details. The declaration of Icahn’s investment in CSX came the same day that superstar investor Warren Buffett disclosed his stake in Union Pacific Corp. and Norfolk Southern Corp., which competes with CSX in the eastern United States.
Buffett energized the transportation sector in April when he disclosed he owned shares in Burlington Northern Santa Fe Corp. and two other railroads that he declined to identify.
The recent interest in the industry is a change for the sector, which has long been seen as an old-fashioned business featuring low returns.
Because of the interest, said analyst Lee Klaskow of Prudential Equity Group, investors might want to take a deep breath before jumping in to railroads. “We believe this will provide further momentum for the group in the near-term,” Klaskow wrote in a note about Icahn’s investment. “However, we believe new money should be patient and choose their entry points carefully.”