The Children's Investment Fund, a $15 billion activist hedge fund that owns 4.1 percent of the railroad CSX, has fired the first shot in what could be a long battle over what it contends is the poor management at the company and its less-than-stellar corporate governance.
In a 14-page letter released Tuesday morning, TCF, as the fund is known, contends that CSX does not understand the economics of its business and is cavalier about potential risks. The letter also calls CSX, undisciplined about spending, unrealistic about future prospects, complacent about operational underperformance and unnecessarily adversarial towards labor.
TCF, which has been successful in past activist situations such as the sale of ABN AMRO, is not undertaking a proxy fight, but the threat looms throughout the letter.
The fund urges the board to separate the chairman and CEO roles and refresh the board with new independent directors.
TCF also called on CSX to change its bylaws to allow shareholders to call special meetings, align management compensation with shareholder interests, justify the capital spending plan and provide a plan to improve operations.
TCF does not call upon CSX to make any immediate changes in its capital structure such as adding debt to pay a special dividend. The company recently increased its share buyback.
TCF's ownership stake in CSX was disclosed by the company last spring, but since that time the fund has not gone public with any attacks. In its letter TCF says it has tried repeatedly but unsuccessfully to speak with the board and management about its concerns.
Shares of the U.S. railroad are up some 24 percent so far this year, outpacing the 7 percent increase of the Dow Jones transportation index.
CSX's results have risen this year as the company has improved the speed at which freight moves along its network and raised prices.