CSX loses appeal to block TCI from winning two seats
(Bloomberg News circulated the following story by David Glovin on September 15.)
NEW YORK CSX Corp., the third-largest U.S. railroad, said two additional nominees supported by London-based activist hedge fund TCI will be seated on its board after losing a legal appeal to block them.
The New York-based U.S. Court of Appeals today upheld a June 11 ruling by a lower-court judge that he lacked legal authority to stop TCI and 3G Capital Partners Ltd. from voting shares at CSX's annual meeting, even though the funds evaded disclosure obligations through the accumulation of equity swaps.
CSX has been in a proxy battle with The Children's Investment Fund Management LLP, or TCI, and 3G for more than a year. The results of the June 25 director vote show four nominees backed by TCI won seats on the 12-member board, Jacksonville, Florida-based CSX said last month. The company disputed the legitimacy of two of them, Christopher Hohn and Timothy O'Toole.
``It is time for the entire duly elected Board, including Chris Hohn and Tim O'Toole, to get to work and make progress on the shareholder mandate they received in June,'' TCI and 3G said in a statement.
CSX, in a statement, said it will seat all four nominees when its annual meeting reconvenes on Sept. 24.
TCI and 3G have pushed CSX to change its board, boost rates and take on more debt to finance stock buybacks. The appeals court upheld the June decision by U.S. District Judge Lewis Kaplan in a two-page ruling, saying a legal opinion will follow.
CSX fell $3.14 to $58.47 in New York Stock Exchange composite trading, amid a slump in U.S. stocks. Before today, the stock had gained 40 percent this year.
The company last week raised its 2008 earnings forecast on a ``positive outlook'' for the industry.
Appeal
CSX has argued that Kaplan found that the funds bought 26.8 million shares, or 6.4 percent, of the company's outstanding stock during the period they failed to make disclosures.
Kaplan said in his ruling that the funds ``deliberately evaded disclosure obligations'' by forming a group to amass swap positions and waiting months before filing the necessary statement. Even so, Kaplan said he still lacked power to block them from voting.
The case is CSX v. The Children's Investment Fund, 08-02899, U.S. Court of Appeals for the Second Circuit (Manhattan).
