Hedge Funds Fail To Win Proxy Service Backing In CSX Fight

Jun 17 2008 | 2:00am ET

A pair of proxy advisers has dealt a setback to the activist hedge funds seeking to elect a dissident slate to CSX Corp.’s board of directors.

Proxy Governance has recommended that shareholders vote for only two of the five nominees proffered by The Children’s Investment Fund and 3G Capital Partners. Meanwhile, Egan-Jones Proxy Services advised CSX investors to back the management slate in toto.

“TCI’s agenda is damaging and could impair the value of the shareholders,” Egan-Jones wrote. “In contrast to the successful strategies implemented by the Board and management team, TCI’s interactions with CSX since last 2006 demonstrate a history of unsound ideas that would not have created value for CSX shareholders and, in some cases, would have destroyed value.”

By contrast, Proxy Governance had some kind words for the hedge funds.

“The dissidents have made a convincing argument that the company could be doing even better and that adding a greater degree of railroad operating experience to the board would make it more informed,” it said in a statement.

Still, it gave its backing to just two members of the dissident slate, including 3G’s Alexandre Behring—a former railroad executive—but withholding their support for TCI chief Christopher Hohn.

The hedge funds argue that the railroad is mismanaged and could achieve more than five times the annual productivity gains that CSX has targeted. CSX has countered that the hedge funds have engaged in a systematic campaign to hide the size of their stake in the company—allegations that won the backing of a federal judge, though that judge declined to punish TCI and 3G in any meaningful way.

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