With CSX’s Letter, Showdown With Hedge Fund Looms

[Anonymous]

"CSX's board on Friday publicly backed management and rebutted criticisms by a hedge fund that the railroad operator has overspent and failed to improve its stock's performance.

"In an unusually detailed letter to The Children's Investment Fund, known as TCI, CSX's board said that it had considered - and rejected - all of the fund's suggestions, including changes to its board and cutting back on spending. It also said that it has rejected the fund's more drastic suggestions, including a management-led buyout or a leveraged recapitalization."

http://dealbook.blogs.nytimes.com/2007/11/16/with-csxs-letter-showdown-with-hedge-fund-looms/

 

[CSSHEGEWISCH]

As has been mentioned elsewhere, this appears to be an attempt to raid the CSX treasury and put the money in TCI's pockets.  CSX would be left in a much weaker financial position after the corporate raiders take the money and run.

[jeaton]

I rather doubt that there is going to be anything like a "showdown" any time soon.  If I understand the situation correctly, "hedge" funds rely heavily on borrowed funds to purchase stocks. This tends to put the operation at relatively high risk, and with the credit markets becoming more risk adverse these days, the ability for such funds to borrow money to make additional share purchases is reduced. 

In this situation, it may be difficult for TCI to get a larger chunk of CSX stock and get the power to make the changes they are seeking.  My guess is that the CSX Board sees the situation as such to let them take a pretty hard in their response.

[tree68]

My take?  TCI wants CSX to do things that will lower its stock value so TCI can buy a bunch of it and loot the treasury...

[Anonymous]

But what about the Children, what will happen to them if the CSX doesn't comply?????

[BaltACD]

But what about the Children, what will happen to them if the CSX doesn't comply?????

They won't notice any difference....the Children only get a very small percentage of all the money TCI generated....They use the Children as a front for their operation which is about everything but the children.

[MStLfan]

In this situation, it may be difficult for TCI to get a larger chunk of CSX stock and get the power to make the changes they are seeking.  My guess is that the CSX Board sees the situation as such to let them take a pretty hard in their response.

They didn't have a large stake in former independent Dutch bank ABN AMRO in january of this year either. Their tactics then are the same now. Invest in an underperformer, make a lot of noise and then cash after somebody else steps in. It happened here in the Netherlands. Sadly, that venerable banking institution is no longer with us thanks to a bidding war that soon followed between Barclays of the UK and a consortium led by Fortis (Belgian/Dutch), Royal Bank of Scotland and Banco Santander (of Spain). Now ABN AMRO is being split up...

greetings,

Marc Immeker

 

[jeaton]

Marc

I was wondering about TCI and Googled for information, so I saw the story about ABN AMRO.

I'll never say never, but I am not sure that Hohn can generate the level of support for his CSX proposals that he was able to get with his previous challenges. 

A securities analyst that follows the US railroads will be presenting to an informal group at Northwestern University's Transportation Center in a couple weeks, and I think he may be able to provide some insight on the subject.  I may have a conflict, but will go to the meeting if I can and will report back on the subject.

[JSGreen]

Hope you get to attend...I am looking forward to your report!  Don't forget to ask if any slides or other handouts are available online for pursal by interested parties! 

[jeaton]

I raised the question of how much shareholder support TCI might have for the changes they are seeking.  It was suggested that the owners of about 30% of CSX stock might back TCI.  That's not likely to be enough to push through such things as a change in top management, but it might be sufficient to get a seat on the Board of Directors.

The TCI thing is a relative minor compared to the larger question as to what will be "next" for the railroad business.  That is just about anybody's guess.  The outcome of pending legislation, the level consumer spending, the housing issues and credit markets are all big factors.

[CopCarSS]

Jay,

Thanks for the report. It'll be interesting to watch the railroad world in the near future...