CSX Board Backs Leaders, Slams Hedge Fund

The board of CSX said Friday it supports the railroad's management and criticized an activist hedge fund that has called for changes at the company.

"The measures of quality for a public company...are shareholder return, financial performance, balance sheet, safety, customer service and governance," the board said in a letter to the fund.

"By any of those measures, the board believes that CSX is an excellent company, and the board unanimously supports the company's strategy and management."

CSX shares are currently trading at 17.16 times estimated 2008 earnings, slightly below the sector average of 17.57. The shares closed at $43.59 Thursday on the New York Stock Exchange. They hit a 52-week high of $51.88 on July 19 and a 52-week low of $33.50 on Jan 10.

The letter to the Children's Investment Master Fund, known by the acronym TCI, came in response to an Oct. 16 letter from the hedge fund calling for a number of management changes, including separating the roles of chairman and chief executive and bringing in directors with more industry experience.

London-based TCI also questioned CSX's management compensation policy and called on the railroad to justify its capital spending plan for the period 2007-2010.

TCI holds 17.8 million CSX shares, a stake of 4.23 percent.

In a telephone interview, CSX Chief Executive Michael Ward told Reuters the letter "shows the board is very pleased with our management team and what we've delivered."

"The board of directors expended a lot of time and effort to analyze all the various recommendations that have been made by TCI throughout the year," Ward added. "And the board found that those recommendations didn't work."

The board, in its letter, questioned whether TCI's actions have been good for CSX shareholders.

"The board respects TCI's right as a shareholder to express its opinions ... However, the board believes that the approaches TCI has offered are not in the best interest of CSX shareholders and, in some cases, have damaged the industry."

The board said that in the past 10 months TCI has come up with a variety of suggestions and demands, including calling on management to seek a leveraged buyout, leverage the company to fund share repurchases, and commit publicly to effectively double prices over 10 years.