CSX/TCI tiff continues

CSX Corp. and The Children’s Investment Fund Management L.L.P. (TCI) continue to throw punches and counter-punches.

On April 4, TCI filed a counterclaim in the U.S. District Court for the Southern District of New York denying CSX’s claim, in a lawsuit filed in March, that TCI and its investment partner 3G Capital Partners Ltd. violated federal securities laws.

In December, TCI — which has been critical of CSX’s management and performance — formed a group with 3G, whose members own 8.7 percent of CSX’s outstanding common shares. The group has nominated five independent directors, who will stand for election at CSX’s annual shareholders meeting to be held June 25.

CSX alleges the two parties violated Section 13(d) of the Securities Exchange Act of 1934 because TCI employed swap agreements to evade Section 13(d) filing requirements. TCI’s disclosures concerning an 11.5 percent share swap position are “materially misleading” to shareholders because they fail to disclose that “swap counterparties” intend to vote CSX shares in accordance with TCI’s wishes, CSX claims.

However, CSX’s suit has “nothing whatsoever to do with their professed concern that shareholders have inadequate information to make an informed vote” at the June meeting, TCI officials said in their counterclaim.

“All of the material information about which CSX claims shareholders should be informed (e.g., TCI and 3G’s alleged beneficial ownership of CSX stock) already has been put before CSX shareholders in SEC filings, CSX press releases and media coverage of this dispute,” the officials said.

Rather than TCI and 3G Capital Partners being the ones that have violated federal securities laws, CSX’s board and Chairman, President and Chief Executive Officer Michael Ward are the parties that have done so, the counterclaim states.

They have “committed violations of the federal securities laws through materially false and misleading disclosures concerning, among other things: compensation set and awarded to directors and senior management of CSX while the board and senior management were aware of material non-public information in violation of CSX’s insider trading policy,” TCI officials said.

In a statement released April 4, CSX officials said TCI filed the counterclaim as an attempt to distract shareholders from the Class I’s previously filed lawsuit.

“The company believes the TCI counterclaims are without merit and will defend against them vigorously,” CSX said.