(The following story by Stephanie Kirchgaessner and James Mackintosh appeared on the Financial Times website on February 26.)
WASHINGTON, D.C. — Politicians will enter the increasingly bitter feud between one of London’s most powerful hedge funds and CSX, one of the biggest US railway operators, next week when The Children’s Investment Fund faces scrutiny in Washington.
The voluntary appearance of TCI, the second-largest shareholder in CSX, before the House of Representatives subcommittee on railroads has the potential to become a highly politicised step in the attempt by CSX to resist the hedge fund’s demands.
TCI founding partner Snehal Amin is expected to face questions about foreign ownership of US infrastructure, a potential minefield for London-based TCI, as well as its secrecy and its questioning of capital spending at CSX.
The subcommittee hearing, called to discuss railway investment, will also hear from Michael Ward, the chairman and chief executive of CSX. TCI began its campaign to split the chairman and chief executive roles in October, accusing management of a “cavalier” attitude to risk and “undisciplined” spending.
It has proposed replacing five of the 12 directors with its own nominees, including Chris Hohn, founder of TCI.
CSX has powerful allies in the US capitol and has donated hundreds of thousands of dollars to lawmakers in Congress, including Corrine Brown, the chairman of the subcommittee who will lead the hearing on March 5. Ms Brown represents the third congressional district of Florida, home to CSX headquarters.
“My boss doesn’t want to get into dictating how companies [constitute their boards] but the the idea that investors would be able to take over a board and make decisions that most would see as detrimental to the industry . . . is concerning,” said Ms Brown’s legislative director, Nick Martinelli.
“When you get into foreign ownership, then you start facing similar issues with the Dubai Port management issue,” he said, referring to the 2005 congressional backlash that scuppered attempts by a state-owned Dubai company to own five US port terminals.
“The chairwoman has concerns that they are an unknown, unnamed hedge fund who would have control of CSX.”
CSX said it was “looking forward to discussing key issues” with members of Congress.
TCI declined to comment. But Mr Hohn is no stranger to the mix of politics and business, having been labelled a “locust” by German politicians when he successfully took on Deutsche Börse, scuppering its efforts to buy the London Stock Exchange.
The CSX assault is the first activism by TCI in the US, although it is also active in Japan, where it has taken on several companies including J-Power.
According to one person familiar with TCI’s views it will tell the subcommittee that it has a majority of US investors and note that it is run from London, as well as pointing out that five directors would not give it control – and that four are US citizens and independent of TCI.
“The reason we are putting these guys on [the board] is they bring 50 years of railroad experience to a board that has zero experience right now,” the person said. “This is our chance to make things public and clear the record.”
TCI may be helped in efforts to gain public support if it highlights its charitable links, as Mr Hohn is one of the most generous philanthropists in the UK thanks to his donations to the Children’s Investment Fund Foundation. The charity had $1.4bn last summer, secured by a combination of a cut of the hedge fund’s fees, donations by partners of the fund and its investments in the fund.