(The following report appeared on the New York Times website on November 16.)
NEW YORK — CSX’s board on Friday publicly backed management and rebutted criticisms by a hedge fund that the railroad operator has overspent and failed to improve its stock’s performance.
In an unusually detailed letter to The Children’s Investment Fund, known as TCI, CSX’s board said that it had considered — and rejected — all of the fund’s suggestions, including changes to its board and cutting back on spending. It also said that it has rejected the fund’s more drastic suggestions, including a management-led buyout or a leveraged recapitalization.
“The Board respects TCI’s right as a shareholder to express its opinions regarding CSX and will continue to keep an open mind,” the board writes in its letter. “However, the Board believes that the approaches TCI has offered are not in the best interests of CSX shareholders and, in some cases, have damaged the industry.”
TCI’s public agitation last month raised eyebrows from observers. Though it prefers not to call itself an activist investor, the fund has successfully prodded targets like ABN Amro, the Dutch banking giant, and Deutsche Borse, into following its suggestions. In its letter last month, TCI said that the other railroads it contacted have been more receptive to its suggestions.
Last month, TCI, made public a letter it had sent to CSX’s board after what it said was a year’s worth of failed attempts to communicate with management. To the contrary, the letter said, the company’s board the fund communicated multiple times with management and its advisers via e-mail and phone calls. It did not dispute the fund’s assertion that senior management met only once with the investor.
“One of us is telling the truth,” Michael J. Ward, the company’s chairman and chief executive, told DealBook Friday morning.
Despite CSX’s stock rising more than 26 percent this year, TCI contends that management has failed to keep pace with its rivals. At the same time, the fund says, Mr. Ward has collected a bigger paycheck than his peers. He earned $13.8 million last year.
CSX said that it has shown gains in several measurements like operating income and stock price over the past two years. Personal injuries and train accidents at the railroad also declined over the same period, according to the board’s letter.
It also defended Mr. Ward’s pay as fair, despite TCI’s urging that compensation be tied to returns on capital. “Contrary to TCI’s suggestion, 100 percent of CSX’s short and long term incentive compensation for CSX executives is tied to company performance that drives shareholder value,” the board wrote in its letter.
One of TCI’s main suggestions was that the company shake up its management structure. It suggested adding more directors with railroad experience and separating the roles of chairman and chief executive. In its letter, CSX rejected all of them, saying that shareholders last year rejected a proposal to do the latter.
CSX said that earlier this year, TCI had suggested a management-led buyout, a move that the company said showed confidence in Mr. Ward and its other officers. Nevertheless, the board rejected the suggestion.