Tuesday, March 24, 2009

Opinion: The Children's Investment who?

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By William C. Vantuono, Editor, Railway Age

ra_from_the_editor_12-07.jpgLast year’s contentious proxy battle involving CSX and activist hedge fund The Children’s Investment Fund Management UK LLP is a fast-fading memory. TCI did manage to get four of its candidates seated, but none of the changes for which TCI was pushing—sweeping structural and management changes, leveraging CSX to junk credit status, doubling shipper rates over 10 years, freezing or scaling back capital investment—have come to pass, and there's no reason to believe they ever will.

As CSX chief executive Michael Ward, Railway Age’s 2009 Railroader of the Year, told us in the January issue, “The proxy contest was quite heated. But TCI now has four board members seated. We had one board meeting since finalization of the results. So far, it’s been very good. We’ve been spending a lot of time filling them in on a bunch of inside information about the company. Obviously, there’s only so much they can know about the company as to where it’s heading from outside public records, so we’ve been having them in for orientation sessions to review what some of our longer term plans are. The attitude of all of the board at this point is, we’ve been creating great value for our shareholders here over the last five years, and all of us want to continue to do that. If there are good ideas that can help us do that, we’re going to embrace them. One thing that was part of their philosophy was that the company ought to be extremely leveraged. I think they changed that viewpoint, given what’s going on in the credit markets. They do agree with our philosophy that we should be an investment-grade company. So far there’s been no acrimony.”

At the March 17 Railroader of the Year award presentation in Chicago, Ward reiterated what he said in January: The board is focused on maintaining CSX as an investment-grade company.

How is CSX doing? On March 23, in a spectacular railroad stock recovery (a day that saw the Dow Jones Industrial Average rise 6.75%), CSX led the parade, rising 12.13%, followed by Kansas City Southern, up 9.99%; Norfolk Southern, up 9.49%; Union Pacific, up 8.65%; and BNSF, up 8.63%.

What of TCI, which Railway Age strongly criticized in its December 2007 issue (above) as “driven by short-term financial interest and a fundamental lack of understanding of the railroad industry and how it functions”?

TCI registered its biggest annual loss in 2008—43%. According to the Financial Times, TCI co-founder Snehal Amin has resigned. Amin, an American who oversaw TCI’s proxy battle with CSX, left earlier this month after Chief Operating Officer James Wilk departed. Wilk had been in the job 10 months. Amin was the last co-founder of TCI still working with Chris Hohn, manager of the $9.5 billion hedge fund. Hohn, one of the four elected to the CSX board, has announced that he will not seek re-election and will depart in May.

Maybe Hohn was a bit disappointed that none of his grand vision for CSX would come to pass, especially when he would have to trek from London to Jacksonville once a month.

Does anybody really care? 

C’est la guerre!

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