CSX Bites Back at Hedge Funds

The railroad company announced last week that it has filed a lawsuit against the hedge funds – which have formed a group to nominate a slate of directors to stand for election at CSX’s annual meeting this year – alleging violations of federal securities laws.

The lawsuit filed in U.S. District Court for the Southern District of New York, alleges, among other things, that TCI has employed swap agreements in order to evade the filing requirements of Section 13(d) of the Securities Exchange Act of 1934, and that TCI’s disclosures concerning its 11.5-percent swap position in CSX shares are materially misleading because they fail to disclose that, by virtue of agreements, understandings or relationships with TCI, swap counterparties intend to vote CSX shares in accordance with TCI’s wishes.

“We filed this suit against TCI and 3G to ensure that all of our shareholders receive complete and accurate information about the group’s holdings, agreements, plans and motivations to which they are entitled under federal securities laws,” Michael Ward, CSX chairman and CEO, said in a statement. “We are committed to protecting the interests of all CSX shareholders and continuing to execute on our successful and proven strategy to further enhance value.”

Moreover, the suit states that TCI and 3G’s disclosures concerning their formation of a Section 13(d) group are false and misleading and, therefore, material information that the investing publish should have regarding the group and its intentions with respect to the company is currently unavailable.

“By virtually all measures the performance of CSX has been exceptional,” said Edward J. Kelly III, presiding director of CSX’s board, in a statement. “Notwithstanding this, in an effort to avoid the disruption and expense of a proxy contest we’ve spoken with TCI on a number of occasions in an attempt to find common ground. Based on these conversations the board concluded that TCI is not simply interested in having a representative voice on the board, but instead is seeking to achieve effective control of the CSX board of directors and dictate company strategy.”

CSX has rescheduled its annual meeting – now to be held on June 25 in New Orleans – to allow an opportunity to pursue the matter and provide adequate time for full and complete information to be made available to shareholders.