June 25, 2008 / 10:20 PM / in 10 years

UPDATE 5-TCI, 3G claim 4 seats in bitter CSX board battle

(Updates with TCI, 3G claiming four seats)

By Nick Carey

NEW ORLEANS, June 25 (Reuters) - The two activist funds squaring off against CSX Corp CSX.N said on Wednesday that preliminary voting results showed the railroad’s shareholders had elected four of the five nominees on their dissident slate.

“This is a victory for all shareholders,” Snehal Amin, a founding partner at The Children’s Investment Fund, told reporters.

The four nominees who would join CSX’s 12-member board were Alex Behring, Chris Hohn, Gil Lamphere and Tim O‘Toole, TCI and 3G Capital Partners, the other fund in the fight, said in a statement.

After abruptly ending the annual shareholder’s meeting held here Wednesday, CSX Chief Executive Michael Ward told reporters there was “no way to know” whether TCI and 3G won any seats until the results of the vote were verified. In a statement, the company said the vote was “too close to call.”

CSX officials said the result of the vote will be released at 10 a.m. EDT (1400 GMT) on July 25 at the company’s Jacksonville, Florida, headquarters.

Amin raised questions about the way CSX conducted the balloting, claiming CSX kept voting open for several hours in order to coerce some shareholders to change their vote. The meeting lasted five hours.

“Our proxy advisors are trying to figure out with large financial institutions whether they changed their votes,” Amin said. “Hopefully not enough (shareholders) changed their minds to affect the outcome.”

London-based TCI and 3G have fought a bitter six-month proxy battle with the railroad company, fielding a dissident slate it said would improve the company’s operations and profitability by bringing more railroad experience to the board.

TCI and 3G contend the company would do better with its nominees, by bringing more railroad experience to the board. Together the two funds have a 20 percent voting stake in CSX.

“We believe CSX can and should be the best railroad in America,” Amin told the meeting. “(The nominees) have real railroad experience, they know the right questions to ask and have the economic incentives to do so.”

The company argues that the hedge funds’ approach would saddle it with debt.

“CSX has a disciplined management that favors building lasting shareholder value,” Ward told the crowd of about 80 shareholders, employees and journalists. “The board sets aggressive goals and holds management accountable for achieving them.”

SHAREHOLDER IRE

While campaigns by activist shareholders to influence management have become more common in recent years, the CSX battle stands out because activist investors are targeting a company that is doing well. CSX shares are up about 44 percent so far this year, four times the rise of the Dow Jones transportation index .DJT.

TCI’s investment in CSX has stirred some complaints that a foreign-headquartered entity has taken a stake in a key piece of the United States’ transportation infrastructure. CNN television anchor Lou Dobbs earlier this month called for a federal investigation into TCI’s interest.

Some shareholders at the meeting echoed those concerns.

“CSX is part of America’s infrastructure, and I don’t want to see any bloody foreigners divvying it up,” said shareholder Charles T. Heimerdinger, who said his family has owned stock in CSX and its predecessors for 70 years. He owns 9,541 shares.

Heimerdinger said it was disgraceful for the London-based fund to try to get seats on the board after “we saved you from the Huns twice in the past century.”

Another shareholder, former employee Al Carpenter, told management he was satisfied with its leadership.

“I want to congratulate you on doing a great job,” Carpenter said. “I don’t know as I could have said the same four years ago.”

Others said fresh blood would be good for the board.

“I’d like to know more about what’s going on in the company and what their plans are,” said Daniel Carleton of Dunnellon, Florida, who owns around 200 shares of CSX. “It might not be a bad idea to have an outside voice on the board.”

The meeting was held in an air-conditioned tent erected in the railroad’s Gentilly railyard in New Orleans, which was heavily damaged three years ago by flooding following Hurricane Katrina, but has since been rebuilt. On an intensely rainy day, the tent sprouted some leaks and at one point the pounding rain drowned out Ward’s remarks to shareholders.

Separately, CSX said it was raising its quarterly dividend to 22 cents from 18 cents.

CSX shares closed up 99 cents, or 1.6 percent, to $63.23 on the New York Stock Exchange. (Additional reporting by James Kelleher) (Writing by Scott Malone, editing by Dave Zimmerman/Jeffrey Benkoe)

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