CSX Annual Meeting Day

[dmaze]

Today is the annual meeting of CSX Transportation, the only one of the seven US Class 1 railroads to directly serve Boston. (They are the recurring source of angst and psychodrama on the Worcester commuter rail line.) Usually annual meetings aren't very exciting things, but a British hedge fund has caused this one to be in the news a lot.

Fundamentally, the exciting thing is this: The Children's Investment Fund (referred to in most articles as TCI) owns a big chunk of CSX stock. The company has done well recently, but on some level all railroads have, and for instance the news articles about CSX's rail operations tend to be things like "190 unrepaired defects found on CSX rail in New York" where the articles on regional competitor Norfolk Southern tend towards "NS buys 50% share of Albany-to-Fitchburg line, expanding into Boston regional market". TCI thinks CSX can do better, and so they have proposed their own slate of five directors for CSX's 12-member board of directors.

It's a little unclear to me what changes TCI actually wants to make. The whole issue (phrased xenophobically in terms of "foreign investors" if you'd like) was the subject of a Congressional hearing, in which TCI approximately asserted that they were looking for a deal that lasted longer than the time that it would take for all of the track and equipment to finally fall apart. It's still generally believed that the proposed changes would tend towards "make more money for investors" above, for instance, "improve infrastructure" (the Class 1s seem to each be spending $1 billion or more on infrastructure annually).

The other exciting thing is the question of how much stock TCI actually owns. If it was at least 5%, they'd be required to report it to the SEC, so they've carefully kept their actual ownership below this threshold. But in addition to the fourish percent of stock TCI owns directly, it's also allied itself with another hedge fund (3G capital) owning another fourish percent, and engaged in swaps to have a position on another 11% of the company. This became an exciting lawsuit last week; the SEC stated that holding a position through swaps didn't trigger the reporting requirements, but the judge in the case ultimately ruled that (a) using swaps explicitly to avoid the reporting requirements triggered them anyways, (b) there was specific evidence that TCI was trying to avoid the reporting requirements, and (c) all of TCI's and their related parties' shares could still vote in the annual meeting but TCI should pay a fine. This ruling left everyone unhappy, but there's not likely to be any change today.

There's also been some amount of lobbying of shareholders on both sides. News reports are that CSX has sent mailings to shareholders requesting they vote the official slate of directors. Unions appear to have come down on both sides of the issue. I haven't heard of TCI or others trying to send out mass mailings either, but I kind of wish I had owned a share of CSX stock just to find out.

So there we go...an exciting intersection between the worlds of railroading, business, law, and derivatives. We'll find out what happens in tonight's and tomorrow's news.