(The following story by John D. Boyd appeared on the Traffic World website on January 12.)
WASHINGTON, D.C. Railroad operator CSX moved closer to collecting $11 million from two hedge funds that successfully fought to get four directors on the CSX board last year. The company said a federal court in New York gave preliminary approval to a settlement to end a shareholder lawsuit.
Before it becomes final and the rail company collects the cash, the court will hold a March 5 hearing. But already The Children's Investment Fund has agreed to pay $10 million and 3G Capital Partners another $1 million, so that a case filed by shareholder Deborah Donoghue never goes to trial.
Last June a federal judge had ruled that TCI and 3G became "beneficial owners" of a considerable percentage of CSX stock beyond their direct purchases, either through swap agreements on shares or through their joint membership in a group under securities law.
The funds have appealed that ruling, and even in the settlement they said CSX's legal theory that prompted the ruling "is hotly contested." But the shareholder used that ruling to sue for "short-swing" profits by the funds on transactions made in a limited period.
According to a court filing, both sides decided that settling was better than risking how the appeals court might rule. The chiefs of both hedge funds also now hold seats on the 12-person CSX board.
The agreement allows the plaintiff's lawyer to receive up to $550,000 in fees and costs out of the settlement, with CSX getting the rest.
