CSX Corp.'s proxy fight with two hedge funds spilled past the end of the voting yesterday, as the railroad called the tally "too close to call" while the investors said they won four board seats.
TCI Fund Management LLP and 3G Capital Partners Ltd. claimed victories for all but one of their five nominees based on "preliminary results" after CSX's annual meeting. CSX Chief Executive Officer Michael Ward said certifying the ballots may take until July 25.
Waiting a month for final numbers will prolong a yearlong struggle over strategy at the third-largest U.S. railroad. U.S. corporate practice is to announce results at a shareholder meeting or shortly afterward, four professors said.
"Several weeks is very unusual and will raise suspicions that CSX is going to try to get shareholders to change their votes and somehow backdate them," said John Coffee, a corporate law professor at Columbia University.
Ward questioned TCI's victory claims regarding the board at CSX, based in Jacksonville, Fla. The railroad advanced a slate for all 12 seats.
"The vote as we see it is too close to call," he said after the annual meeting, which was held in a New Orleans rail yard that was wrecked in 2005 by Hurricane Katrina. "I don't know how they can know that until the results are certified."
TCI and 3G have said that CSX hasn't produced the best possible returns and urged splitting Ward's CEO and chairman's role. CSX has said its future would be at risk by adopting TCI's push for higher rates and more debt to pay for stock buybacks.
The two funds said nominees Alexandre Behring, Christopher Hohn, Gilbert Lamphere and Tim O'Toole all had won seats. "This is a victory for all CSX shareholders," the funds said in a statement.
The fifth candidate on the slate was Yahoo Inc. director Gary Wilson.
TCI and 3G own about 8.7 percent of CSX stock, making them the third- and fourth-largest shareholders, respectively. They also own swaps contracts providing "economic exposure" to an additional 11.8 percent of the common shares, according to a Dec. 19 filing.
Case law related to such contracts isn't well-formed, so CSX could benefit by taking time to study the voting done for the shares linked to those investments, said Ron Gilson, a corporate law professor at Stanford University.
"They really need to do it right because the likelihood of litigation is really high," he said.
CSX shares rose 99 cents, or 1.6 percent, to $63.23 on the New York Stock Exchange. The shares have gained 44 percent this year.
After the meeting, CSX raised its quarterly dividend 22 percent to 22 cents a share from 18 cents. It was the third increase since May 2007, when TCI began its CSX campaign.
The fund opened that effort with a speech in New York by partner Snehal Amin in which he criticized CSX management and urged CSX and other U.S. railroads to increase their borrowing. The months of sparring since then set the stage for the proxy fight at yesterday's meeting.
TCI accused CSX of "stall tactics" by allowing voting to continue into the afternoon and asked that balloting end before a lunch break. Ward rejected the request as "out of order," saying shareholder proposals had to be submitted in advance.
"There are third-world countries that run elections better than this," said Peter Henning, corporate law professor at Wayne State University.