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This excerpt taken from the CSX DEFA14A filed Jun 11, 2008. has
always been some form of reregulation threat in Congress since the time
rail industry was deregulated in 1980. The TCI Group’s suggestion
that its calls to freeze growth capital expenditures were limited to the moment
of a re-regulation threat is meaningless, and it reflects a failure to
appreciate the real dynamics of the business-critical issues that the rail
industry faces in Washington. As one industry trade journalist
recently observed in his column,
…this
British-based fund is terribly naïve about American politics. Amin
and his people stuck their heads into a political buzzsaw…
The TCI
Group has publicly and repeatedly called for CSX to freeze expansion capital
spending. They have done so in letters to the Board and in public
hearings before Congress, which has drawn a Congressional backlash and hurt the
rail industry’s efforts to avoid damaging and unnecessary
re-regulation.
4. The
TCI Group said yesterday—twice—that CSX first identified $400 million in recent
productivity gains only two weeks ago in response to the TCI Group’s
claims.
That is
false. In the January 22, 2008 conference call reporting CSX fourth
quarter earnings and discussing outlook, Michael Ward and Oscar Munoz identified
the $400 million in past productivity gains and described efforts to achieve
even greater efficiency gains in coming years – precisely what CSX is saying
five months later.
5. The
TCI Group yesterday continued to use misleading statistics that incorrectly
characterize CSX as an industry laggard in operating performance.
The TCI
group yesterday continued a pattern of using misleading statistics to
misrepresent CSX’s operational performance compared to its peers. CSX
has produced a detailed presentation conclusively rebutting these misleading
comparisons, but the TCI Group continues to repeat them.
For
example, The TCI Group repeated yesterday the false claim that CSX pays
employees for more time not worked than does Norfolk Southern. It is
well known that, unique among U.S. Class I railroads, Norfolk Southern counts
paid training time as “hours worked.” CSX and the other railroads do
not similarly count training time, skewing the number so that it appears that NS
pays for fewer hours of time not worked. CSX matches up favorably
with the other railroads that use comparable measures, and TCI knows
this.
The TCI
Group also continues to use comparisons between dwell time at Canadian National
and CSX, when it should by now be well aware that CN uses a different
measurement
for dwell
than CSX and the rest of the North American railroads. In fact, when
adjusted for this methodological difference, CSX dwell time is comparable to
that of CN.
On
the Dynamics and Shareholder Interests
6. The
TCI Group said yesterday that CSX prematurely and without explanation broke off
negotiations over Board representation after TCI offered a 1-year
standstill.
Chris
Hohn never offered a standstill to Michael Ward and Ned Kelly during
negotiations. His statement to the contrary yesterday is
false. In fact, he said he would never consider one – without a
standstill ever having been mentioned by Mr. Ward or Mr. Kelly. The
discussions were terminated when Mr. Kelly sent Mr. Hohn the following email on
January 18, 2008:
Chris
– I have reflected on our most recent conversation and consulted with
others. There continue to be significant differences between our
respective positions, including your indication yesterday that no standstill
would ever be acceptable to you. We have concluded that these
differences are impossible to bridge.
The fact
that Mr. Hohn may have later changed his mind about a standstill after
negotiations had ended does not alter the fact that the negotiations were
conducted and concluded in good faith on the part of CSX. In
contrast, TCI’s emails internally and to 3G and the TCI Group nominees show that
it never intended to accept anything less in the negotiations than an agreement
to seat all five of the TCI Group’s nominees. For example, Mr. Amin
wrote to 3G and the TCI Group nominees on December 22, 2008:
We
will listen to what [Ned K]elly has to say, but this process is in the
shareholders hands now and we are very confident we will win. The
only alternative to the proxy fight is if they will allow our 5 nominees on and
we can mutually agree with them which 5 of their directors to
replace. Otherwise we will take the fight to the shareholders and get
our 5 on anyway.
7. The
TCI Group said yesterday that the CSX Board refused to meet until the proxy
contest was initiated.
In March
2007, CSX offered a meeting with its CEO that TCI did not
accept. That same month, TCI made an approach to one, and possibly
more, executives asking them if they wished to be the CEO of CSX.
Throughout
2007 and in early 2008, CSX officers and other representatives met with TCI many
times, and TCI’s views were considered by the Board during a dozen Board and
Committee meetings in 2007 alone. In the summer of 2007, CSX’s
advisors twice invited TCI to
present
its views to the CSX Board in writing as a first step to a
meeting. TCI never extended to the CSX Board the courtesy of this
direct communication.
8. The
TCI Group said yesterday that CSX is scaremongering in Washington.
That is
false. TCI’s strident approach to rails drew letters from U.S.
Senators as early as July 2007, calling for hearings and
re-regulation. TCI has told people privately that it knows it made
mistakes and raised alarm among Washington policymakers. Moreover,
TCI drew worldwide attention by demanding European Union sanctions against Japan
and threatening to sue the Japanese government when it was rebuffed on a utility
investment due to Japanese national security concerns. Against that
background, it is absurd to blame CSX for awakening U.S. legislators to the
questions posed by TCI’s interest in critical U.S. infrastructure.
9. The
TCI Group said yesterday that it is not seeking control over CSX.
Over the
past 18 months, the TCI Group has demanded that CSX take a number of significant
actions with long-term strategic implications for all
shareholders. While publicly giving assurances that it is not seeking
control of CSX, the TCI Group has tried to recruit a new CEO, threatened to
“replace the full Board” and said that there will be “no limits” if its demands
are not met.
Yesterday,
the TCI Group was talking to serious investors about an important
decision. There will always be strongly opposing views in a contest
like this. But I take most seriously the misrepresentation of facts
by the TCI Group yesterday, which is in stark contrast to the candor we owe our
investors. If you have any questions, please do not hesitate to
call.
Regards,
Michael
J. Ward
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