The Children's Investment Fund Management LLP, a high-profile hedge fund which we have encountered before in this blog, is apparently discussing with investors the possibility of offeringt hem more attractive terms, and even returning to them some cash, given their unhappiness over its recent poor performance.
We've encountered TCI fairly often in the brief history of this blog. Its proxy fight to get candidates on the board of CSX led to some intellectually fascinating litigation.
And its adventures in Japan led to a head-on clash with that country's government.
But investors don't care about ntellectual challenge or the sense of multi-national adventure. They're in it, believe it or not, for the money. And since TCI has not been generating a lot of they, they have to mollify.
Since it is Sunday, and I have to go work on my yard, I'll just send you over to Bloomberg for more.
Showing posts with label TCI. Show all posts
Showing posts with label TCI. Show all posts
Sunday, June 28, 2009
Tuesday, April 7, 2009
TCI Goes Short on Japan
I've written of TCI before here. In a post last May for example, I mentioned TCI's proxy contest among shareholders of the Japanese power company J-Power. The management prevailed against TCI in that contest, largely because Japan's government came to their aid. TCI sold its stake in J-Power in October, taking a US$130 million loss.
Now I read that TCI has changed its tack as to its Japanese positions. In order to be a corporate activist, an investor essentially has to be long -- has to own voting equity. But TCI has switched (according to a recent Bloomberg story) to a predominantly short strategy in regards Japan.
TCI has about US$1.2 billion in cumulative short positions in 13 Japanese stocks, including some of that country's biggest names: Toshiba Corp.; Sharp Corp.; Mizuho Financial; Sony Corp., and so forth.
Its short position in Toshiba was worth 39.5 billion yen (US$396 million) at the close of business Wednesday, April 1.
In October of last year the government imposed new requirements on short selling, including disclosure rules, so this data is now available through the Tokyo Stock Exchange's website, though as I say I've lazily taken it from Bloomberg's story.
Here are links, first to Bloomberg;
then to the TSE's English-language page.
Tuesday, September 16, 2008
Three brief items
1. Wow. Wall Street has had an exciting weekend.
Personally, I'm glad Lehman has bit the dust. Somebody had to. These firms and their proprietary traders are in the business of taking risks, and it is in the nature of risk that there be losers.
The "moral hazard" was becoming enormous, even in just the relatively short period since the government avoided a Bear Stearns bankruptcy with a fire sale of that storied brokerage firm to JP Morgan in the spring.
Neither well, nor poorly. JPM stock has lost about 7% of its value since that time. But this is in line with the general market trends in the intervening period, so the acquisition of Bear can't be blamed for that.
Anyway, there had been a lot of talk, the usual talk, about how Lehman again was somebody "too big to fail" and the Federal Reserve or the Treasury or somebody would have to step in and prevent its failure. But nobody has.
As I say, I'm glad. So everybody will be just a little more careful with risky financial instruments in the near future perhaps? So that might not be a terrible thing?
It is sometimes called "creative destruction." Something has to be destroyed as something else is created. What is now being created in the US is a depositor-centered financial world, in which commercial and investment banks are one and the commercial side is the one.
2. CSX opinion.
The second circuit has issued an opinion in the much-watched matter of TCI/CSX.
You can refresh your recollection of the issues here.
I'm disappointed. The 2d circuit didn't even get to what I see as the key issue in the case, the unbundling of votes from economic interest. Instead, it tersely upheld the vote that has been taken and the district court's decisison ONLY INSOFAR as the district court had refused to interfere with that vote.
"We decide that issue alone at this time," the appellate court said. Drats.
3. Crude oil likely to stabilize
Here's some guessing (note that word!).
The fall in the price of crude oil in recent weeks, from its peak of nearly $150 a barrel in mid-July to a current price below $100, has likely gone as far as it is going to go.
The crude oil price run-up this summer seems to have been a South Sea-like speculative mania, and the run-down seems to have been the bursting of that bubble, so now the stuff is back in the grip of the fundamentals.
Given the continuing credit/liquidity crunch, there will be a great deal of temptation to inflate the currency, at least until $110 doesn't mean as much as $90 does now.
Personally, I'm glad Lehman has bit the dust. Somebody had to. These firms and their proprietary traders are in the business of taking risks, and it is in the nature of risk that there be losers.
The "moral hazard" was becoming enormous, even in just the relatively short period since the government avoided a Bear Stearns bankruptcy with a fire sale of that storied brokerage firm to JP Morgan in the spring.
Neither well, nor poorly. JPM stock has lost about 7% of its value since that time. But this is in line with the general market trends in the intervening period, so the acquisition of Bear can't be blamed for that.
Anyway, there had been a lot of talk, the usual talk, about how Lehman again was somebody "too big to fail" and the Federal Reserve or the Treasury or somebody would have to step in and prevent its failure. But nobody has.
As I say, I'm glad. So everybody will be just a little more careful with risky financial instruments in the near future perhaps? So that might not be a terrible thing?
It is sometimes called "creative destruction." Something has to be destroyed as something else is created. What is now being created in the US is a depositor-centered financial world, in which commercial and investment banks are one and the commercial side is the one.
2. CSX opinion.
The second circuit has issued an opinion in the much-watched matter of TCI/CSX.
You can refresh your recollection of the issues here.
I'm disappointed. The 2d circuit didn't even get to what I see as the key issue in the case, the unbundling of votes from economic interest. Instead, it tersely upheld the vote that has been taken and the district court's decisison ONLY INSOFAR as the district court had refused to interfere with that vote.
"We decide that issue alone at this time," the appellate court said. Drats.
3. Crude oil likely to stabilize
Here's some guessing (note that word!).
The fall in the price of crude oil in recent weeks, from its peak of nearly $150 a barrel in mid-July to a current price below $100, has likely gone as far as it is going to go.
The crude oil price run-up this summer seems to have been a South Sea-like speculative mania, and the run-down seems to have been the bursting of that bubble, so now the stuff is back in the grip of the fundamentals.
Given the continuing credit/liquidity crunch, there will be a great deal of temptation to inflate the currency, at least until $110 doesn't mean as much as $90 does now.
Tuesday, August 26, 2008
CSX/TCI Arguments
Yesterday, the second circuit court of appeals heard arguments from lawyers on both sides of the CSX/TCI case.
There are several issues at stake. I am especially interested inone: the relevance (or otherwise) of an investor's position in total return swaps to the disclosures required by 13D.
Why is that important? Because it is part of the much broader question of whether ownership is a single fact or an arbitrary bundle. When I went to law school, the basic property law course began with an effort to disabuse students of the naive idea that ownership is a simple solid sort of fact. The ownership of land, for example, consists of the right to exclude others from it, the right to reside there and enjoy it, the right to sell it in whole or in part, the right to lease it out, etc.
When can contracting parties break up the bundle and redistribute elements of ownership to their hearts content? when are they stuck with a stick simply becauise they're holding another stick thereof?
The trial court judge in this case rendered a decision that strongly implies that the bundle isn't arbitrary, and thus isn't infinitely malleable. Not, at any rate, in the matter of the ownership of shares of stock. Now we'll see how well that inference does at the next level up the judicial hierarchy.
That's an amateur historian/philosopher's view of the case, not the way the lawyers will describe the issues. What lawyers will tell you is that the fund is obligated to report beneficial ownership of equity securities, AND the refrain from engaging in any "scheme to evade" that requirement. The railroad pitched two different theories to the trial court: that the cash-settled derivatives that TCI owned are in effect equity securities, or that for quite specific reasons that may not apply in a lot of other cases the fund was employing those derivatives as part of a scheme to evade. There is, in short, both a broad and a narrow theory at stake.
The trial court judge indicated that if he feels sympathetic toward the broader theory. But that was as lawyers say "dicta." He actually ruled against TCI, to the extent that he did, only on the narrower theory.
The appeals court could, for all I know to the contrary, reject both theories and find that TCI's actions were as pure as the driven snow. Or it could accept the broad theory.
The betting line at the moment, though, is that the appellate court like the trial court will "split the difference" and go with the narrower theory. Although even within the narrower theory there's a lot of room for differences between the two courts and there will certainly be some. A simple "judgment affirmed" isn't in the cards. That is the one point on which I am bold enough to make a prediction.
We'll see how things shake themselves out.
There are several issues at stake. I am especially interested inone: the relevance (or otherwise) of an investor's position in total return swaps to the disclosures required by 13D.
Why is that important? Because it is part of the much broader question of whether ownership is a single fact or an arbitrary bundle. When I went to law school, the basic property law course began with an effort to disabuse students of the naive idea that ownership is a simple solid sort of fact. The ownership of land, for example, consists of the right to exclude others from it, the right to reside there and enjoy it, the right to sell it in whole or in part, the right to lease it out, etc.
When can contracting parties break up the bundle and redistribute elements of ownership to their hearts content? when are they stuck with a stick simply becauise they're holding another stick thereof?
The trial court judge in this case rendered a decision that strongly implies that the bundle isn't arbitrary, and thus isn't infinitely malleable. Not, at any rate, in the matter of the ownership of shares of stock. Now we'll see how well that inference does at the next level up the judicial hierarchy.
That's an amateur historian/philosopher's view of the case, not the way the lawyers will describe the issues. What lawyers will tell you is that the fund is obligated to report beneficial ownership of equity securities, AND the refrain from engaging in any "scheme to evade" that requirement. The railroad pitched two different theories to the trial court: that the cash-settled derivatives that TCI owned are in effect equity securities, or that for quite specific reasons that may not apply in a lot of other cases the fund was employing those derivatives as part of a scheme to evade. There is, in short, both a broad and a narrow theory at stake.
The trial court judge indicated that if he feels sympathetic toward the broader theory. But that was as lawyers say "dicta." He actually ruled against TCI, to the extent that he did, only on the narrower theory.
The appeals court could, for all I know to the contrary, reject both theories and find that TCI's actions were as pure as the driven snow. Or it could accept the broad theory.
The betting line at the moment, though, is that the appellate court like the trial court will "split the difference" and go with the narrower theory. Although even within the narrower theory there's a lot of room for differences between the two courts and there will certainly be some. A simple "judgment affirmed" isn't in the cards. That is the one point on which I am bold enough to make a prediction.
We'll see how things shake themselves out.
Tuesday, June 10, 2008
TCI/CSX showdown. Themes
Continuing yesterday's entry about the Riskmetrics-sponsored webcast....
Michael Ward, the railroad's CEO, said early on in the company's presentation that "there's a growing recognition among public policymakers of the critical role of rail."
He seemed to mean a couple of things by that. First, I believe he wanted to wrap his cause in the mantle of homeland security. Imagine how terrible it would be if the US rail system fell into the hands of foreigners?
GI Joe and Tommy have been fighting together in the desert for some time now, so even given certain premises, most people find this a less than compelling danger when the damn furriners in question have their HQ in London.
But I think he meant something else, too. He meant that building up the rail system might be part of a national energy policy. They get more freight-transporting bang for the hydrocarbon buck than highway-travelling trucks. Letting TCI get seats on the board would threaten this because (in his view) TCI isn't interested in building up the railroad, but in deconstructing it for a quick buck.
Another speaker on the CSX side was Donna Alvarado, one of the incumbent directors. She took umbrage at TCI's contention that they're trying to shake up a lazy and entrenched board, that has let value-enhancing opportunities pass it by. Ms Alvarado said that, so the contrary, CSX is a model of enlightened corporate governance, "the board has opted out of anti-takeover statutes" for example, and its elections aren't staggered.
That was an interesting point, and frankly a better one than any Mr. Ward had made.
When TCI got its turn, they did in fact make the charge that Ms Alvarado had sought to pre-empt. Christopher Hohn, the fund's founder, said: "We see a really dramatic difference between companies that have strong boards and companies that have rubber-stamp boards," and that CSX is, alas, one of the latter.
Also, in reply to much of Mr. Ward's presentation, Mr. Hohn said: "If we were just looking to make a quick buck, we would have left CSX a long time ago."
Michael Ward, the railroad's CEO, said early on in the company's presentation that "there's a growing recognition among public policymakers of the critical role of rail."
He seemed to mean a couple of things by that. First, I believe he wanted to wrap his cause in the mantle of homeland security. Imagine how terrible it would be if the US rail system fell into the hands of foreigners?
GI Joe and Tommy have been fighting together in the desert for some time now, so even given certain premises, most people find this a less than compelling danger when the damn furriners in question have their HQ in London.
But I think he meant something else, too. He meant that building up the rail system might be part of a national energy policy. They get more freight-transporting bang for the hydrocarbon buck than highway-travelling trucks. Letting TCI get seats on the board would threaten this because (in his view) TCI isn't interested in building up the railroad, but in deconstructing it for a quick buck.
Another speaker on the CSX side was Donna Alvarado, one of the incumbent directors. She took umbrage at TCI's contention that they're trying to shake up a lazy and entrenched board, that has let value-enhancing opportunities pass it by. Ms Alvarado said that, so the contrary, CSX is a model of enlightened corporate governance, "the board has opted out of anti-takeover statutes" for example, and its elections aren't staggered.
That was an interesting point, and frankly a better one than any Mr. Ward had made.
When TCI got its turn, they did in fact make the charge that Ms Alvarado had sought to pre-empt. Christopher Hohn, the fund's founder, said: "We see a really dramatic difference between companies that have strong boards and companies that have rubber-stamp boards," and that CSX is, alas, one of the latter.
Also, in reply to much of Mr. Ward's presentation, Mr. Hohn said: "If we were just looking to make a quick buck, we would have left CSX a long time ago."
Monday, June 9, 2008
CSX Update
I'm beginning this post while listening to music in my right ear.
I'm on hold as a teleconference is about to begin, sponsored by RiskMetrics. They've brought together representatives from both sides of the TCI/CSX dispute.
FT Alphaville, helping with the hype, has said that this will be a first, "a pixelated and very public showdown between CSX, a container and logistics group, and its activist hedge fund tormentors, TCI and 3G Capital."
On the dais for the railroad, its chairman Michael Ward, its CFO Oscar Munoz, and others.
For the hedge funds: Snehal Amin, founding partner at TCI, and Alexandre Behring, Managing Director at 3G, etc.
Christopher Young will moderate (or referee if it gets good!). He's the head of mergers and acquisitions research at RiskMetrics.
I'm not going to try live blogging. I'll let you know my impressions in tomorrow's entry here, though.
I'm on hold as a teleconference is about to begin, sponsored by RiskMetrics. They've brought together representatives from both sides of the TCI/CSX dispute.
FT Alphaville, helping with the hype, has said that this will be a first, "a pixelated and very public showdown between CSX, a container and logistics group, and its activist hedge fund tormentors, TCI and 3G Capital."
On the dais for the railroad, its chairman Michael Ward, its CFO Oscar Munoz, and others.
For the hedge funds: Snehal Amin, founding partner at TCI, and Alexandre Behring, Managing Director at 3G, etc.
Christopher Young will moderate (or referee if it gets good!). He's the head of mergers and acquisitions research at RiskMetrics.
I'm not going to try live blogging. I'll let you know my impressions in tomorrow's entry here, though.
Wednesday, May 21, 2008
Proxy Fight at J-Power
The hedge fund TCI now says that it will wage a proxy contest among the shareholders of the Japanese electricity wholesaler J-Power, demanding higher dividends and a limit on cross-shareholdings.
Last month, TCI sought permission from the government of the country to raise its stake in J-Power to 20%. The government denied that request as I noted at the time, so the activist fund still has just below the 10% limit.
J-Power's annual meeting is set for June 26. TCI says that it plans to "expose serious conflict of interest of supplier and cross-shareholders" between now and then.
Cross-shareholding is a major corporate-governance issue that we haven't yet discussed on this blog. It refers to the practice whereby two corporations may hold shares in each other, therebvy entrenching the management of each against possible dissidents. The practice is quite common in Japan.
Should we stigmatize pressure upon Japanese countries of this sort, brought to bear by a London-based fund, as neo-imperialist? I don't see how that assists understanding, although those who wish may use the label at their pleasure. The world is getting to be a smaller place, and Japan of all countries knows the impossibility of autarky.
Last month, TCI sought permission from the government of the country to raise its stake in J-Power to 20%. The government denied that request as I noted at the time, so the activist fund still has just below the 10% limit.
J-Power's annual meeting is set for June 26. TCI says that it plans to "expose serious conflict of interest of supplier and cross-shareholders" between now and then.
Cross-shareholding is a major corporate-governance issue that we haven't yet discussed on this blog. It refers to the practice whereby two corporations may hold shares in each other, therebvy entrenching the management of each against possible dissidents. The practice is quite common in Japan.
Should we stigmatize pressure upon Japanese countries of this sort, brought to bear by a London-based fund, as neo-imperialist? I don't see how that assists understanding, although those who wish may use the label at their pleasure. The world is getting to be a smaller place, and Japan of all countries knows the impossibility of autarky.
Tuesday, May 13, 2008
Three quick notes
1. Melnyk's astonishment
Let's just try to keep up today with three of our continuing stories. As I reported month, there was a shake-up at the Canadian pharma company Biovail. The company is doing its best to disassociate itself from its founder, Eugene Melnyk, whom it blames for a roster of legal troubles. This is tricky, because Melnyk remains the largest shareholder, with just under 12% of the equity.
And he isn't a happy camper. Indeed, in a letter to the reconstituted board of his old company, dated May 8, he professes himself astonished by the latest measures in this continuing distancing.
He is "very concerned about the circumstances surrounding the entering into of the employment agreements with senior management and the change in control provisions in those agreements. I intend to pursue this matter further."
He can pursue it on June 25, the day of the annual shareholders' meeting. The "record date" for the meeting is April 28 -- i.e. you'd need to have been a shareholder "of record" by then to be qualified to vote.
2. More from Ben Stein
You remember Ben Stein? I last wrote about him in January, when he used his New York Times column to set out a theory of "trader realism," i.e. that the whims and machinations of speculators in Manhattan or London are so important to pricing of strategic commodities that they render the fundamentals ("supply," and "demand" and other stuff and nonsense) essentially irrelevant.
This is a lunatic theory, and since then Stein has shown signs of abandoning it for a cause even dearer to his heart -- "biologist realism" linked here.
But watch out economics. Stein, like a poltergeist, is baaa-ack.
Felix Salmon does him justice.
3. The latest at CSX
The feud between railroad company CSX and activist investor TCI continues, pending some resolution at next month's meeting.
TCI has posted a white paper titled "CSX: The Case for Change," it claims that numerous opportunities for productivity improvements could add $2.2 billion to annual earnings within five years, and it complains that the incumbents ()the folks who have left those opportunities unexploited) have also awarded themselves the highest pay packages in the industry.
Yesterday, TCI sent out a "dear shareholders'" letter asking its fellow investors to go to their website and check out that white paper.
Let's just try to keep up today with three of our continuing stories. As I reported month, there was a shake-up at the Canadian pharma company Biovail. The company is doing its best to disassociate itself from its founder, Eugene Melnyk, whom it blames for a roster of legal troubles. This is tricky, because Melnyk remains the largest shareholder, with just under 12% of the equity.
And he isn't a happy camper. Indeed, in a letter to the reconstituted board of his old company, dated May 8, he professes himself astonished by the latest measures in this continuing distancing.
He is "very concerned about the circumstances surrounding the entering into of the employment agreements with senior management and the change in control provisions in those agreements. I intend to pursue this matter further."
He can pursue it on June 25, the day of the annual shareholders' meeting. The "record date" for the meeting is April 28 -- i.e. you'd need to have been a shareholder "of record" by then to be qualified to vote.
2. More from Ben Stein
You remember Ben Stein? I last wrote about him in January, when he used his New York Times column to set out a theory of "trader realism," i.e. that the whims and machinations of speculators in Manhattan or London are so important to pricing of strategic commodities that they render the fundamentals ("supply," and "demand" and other stuff and nonsense) essentially irrelevant.
This is a lunatic theory, and since then Stein has shown signs of abandoning it for a cause even dearer to his heart -- "biologist realism" linked here.
But watch out economics. Stein, like a poltergeist, is baaa-ack.
Felix Salmon does him justice.
3. The latest at CSX
The feud between railroad company CSX and activist investor TCI continues, pending some resolution at next month's meeting.
TCI has posted a white paper titled "CSX: The Case for Change," it claims that numerous opportunities for productivity improvements could add $2.2 billion to annual earnings within five years, and it complains that the incumbents ()the folks who have left those opportunities unexploited) have also awarded themselves the highest pay packages in the industry.
Yesterday, TCI sent out a "dear shareholders'" letter asking its fellow investors to go to their website and check out that white paper.
Tuesday, April 22, 2008
CSX Sets a date
CSX Corp., the railroad company involved in a heated political and legal dispute with the London-based hedge fund TCI, has set a date for its 2008 shareholder's meeting.
June 25, in New Orleans.
The TCI group (which also includes 3G Capital Partners Ltd.), will solicit proxies for an opposition slate of five nominees for the board.
That's not a takeover attempt, strictly speaking. There are twelve directors, and the board is unclassified -- in other words, all twelve are up for (re-)election in any given year. That the dissidents are only nominating five means that they'll be a minority (though just barely) even if all five of their nominees end up seated around that table.
This could mean either (a) they could only find five qualified nominees willing to put their names up for this purpose, or (b) they're seeking to give undecided stockholders a feeling of security and continuity by making of point of seeking only a minority position.
CSX held a conference call on April 16 to discuss its first quarter results. Looking through the transcript, I realize that one of the predictable problems faced by any railroad is that the contract prices for hauling are fixed for long periods of time -- these "legacy contracts" can lock in the prices for hauling coal for particular shippers for up to five years. That doesn't give the management a lot of room to respond to changes in their own costs.
Good thing it's their headache and not mine, I suppose.
June 25, in New Orleans.
The TCI group (which also includes 3G Capital Partners Ltd.), will solicit proxies for an opposition slate of five nominees for the board.
That's not a takeover attempt, strictly speaking. There are twelve directors, and the board is unclassified -- in other words, all twelve are up for (re-)election in any given year. That the dissidents are only nominating five means that they'll be a minority (though just barely) even if all five of their nominees end up seated around that table.
This could mean either (a) they could only find five qualified nominees willing to put their names up for this purpose, or (b) they're seeking to give undecided stockholders a feeling of security and continuity by making of point of seeking only a minority position.
CSX held a conference call on April 16 to discuss its first quarter results. Looking through the transcript, I realize that one of the predictable problems faced by any railroad is that the contract prices for hauling are fixed for long periods of time -- these "legacy contracts" can lock in the prices for hauling coal for particular shippers for up to five years. That doesn't give the management a lot of room to respond to changes in their own costs.
Good thing it's their headache and not mine, I suppose.
Wednesday, April 9, 2008
Three quick notes
1. Japan's trade minister, Akira Amari, wants to block the London-based hedge fund TCI from buying up to 20% of the equity in the country's leading electricity wholesaler.
TCI now owns 9.9% of the company, known informally as J-Power, because 10% is the cap beyond which acquisitions in certain industries deemed essential to national security require government approval in that country.
Mr. Amari said he doesn't believe his stand should be taken as any indication that Japan is closing itself to foreign investment. "J-Power is involved in a nuclear power plant project and operates power lines linking Japan's four major islands; all these could affect public order and daily life."
2. The annual meeting of Motorola this year will come off early next month without a proxy fight, now that the company has patched things up with investor Carl Icahn.
Icahn's taken a beating on MOT's stock price of late. His SEC filings indicate he's paid an average of $14.41 a share for the 144.56 million shares of the company he owns. The market price at the close of business yesterday was $9.49. So let's break out the calculator. A loss of $4.92 in the value of each share, times 144.56 million? that adds up to a loss of more than 711 million. Pretty soon, even for Icahn, you'll be talking real money.
Of course, that's only a paper loss. Icahn now has representatives on the board, and he hopes to introduce changes that will turn around the recent price slide.
3. SCSF Equities, a private-equity firm based in Boca Raton, Florida, now says that it wants to replace three of the members of the board of directors of Furniture Brands, of St. Louis, MO.
Their three nominees are: T. Scott King; Ira Kaplan; Alan Schwartz. Mr. King is the managing director of Sun Capital Partners Inc., which is the parent company of SCSF. Ira Kaplan is the barely-retired CFO of Claire's Stores Inc. The surprise in this list, the one that makes me sit up and take notice, is Alan Schwartz.
Schwartz is a distinguished academic student of corporate governance. He's been a professor at Yale University since 1987 -- teaching both at the law school and at the management school there. What's he doing in this fight?
We may try to figure that out together next week, fellow spectators. See ya Sunday.
TCI now owns 9.9% of the company, known informally as J-Power, because 10% is the cap beyond which acquisitions in certain industries deemed essential to national security require government approval in that country.
Mr. Amari said he doesn't believe his stand should be taken as any indication that Japan is closing itself to foreign investment. "J-Power is involved in a nuclear power plant project and operates power lines linking Japan's four major islands; all these could affect public order and daily life."
2. The annual meeting of Motorola this year will come off early next month without a proxy fight, now that the company has patched things up with investor Carl Icahn.
Icahn's taken a beating on MOT's stock price of late. His SEC filings indicate he's paid an average of $14.41 a share for the 144.56 million shares of the company he owns. The market price at the close of business yesterday was $9.49. So let's break out the calculator. A loss of $4.92 in the value of each share, times 144.56 million? that adds up to a loss of more than 711 million. Pretty soon, even for Icahn, you'll be talking real money.
Of course, that's only a paper loss. Icahn now has representatives on the board, and he hopes to introduce changes that will turn around the recent price slide.
3. SCSF Equities, a private-equity firm based in Boca Raton, Florida, now says that it wants to replace three of the members of the board of directors of Furniture Brands, of St. Louis, MO.
Their three nominees are: T. Scott King; Ira Kaplan; Alan Schwartz. Mr. King is the managing director of Sun Capital Partners Inc., which is the parent company of SCSF. Ira Kaplan is the barely-retired CFO of Claire's Stores Inc. The surprise in this list, the one that makes me sit up and take notice, is Alan Schwartz.
Schwartz is a distinguished academic student of corporate governance. He's been a professor at Yale University since 1987 -- teaching both at the law school and at the management school there. What's he doing in this fight?
We may try to figure that out together next week, fellow spectators. See ya Sunday.
Monday, April 7, 2008
CSX/TCI
One lawsuit deserves another?
Last month, the railroad company CSX sued one of its large shareholders, the hedge fund TCI, claiming that it hadn't properly disclosed the nature and extent of its stake in the company.
So Friday, April 4, TCI filed its answer to that complaint, along with its counterclaims.
The answer is, simply: Yes, we did too disclose. Or, in language sounding a bit less like it comes from a playground: "All of the material information regarding TCI's investment in CSX is public," referencing in particular the Hart-Scott-Rodino notice that TCI sent CSX more than a year ago, and that CSX in turn included in its SEC filings.
The most newsworthy of the counterclaims is that CSX and its chief executive, Michael Ward, have engaged in insider trader, through the mechanism of the timing of certain stock grants to executives eleven months ago.
Last month, the railroad company CSX sued one of its large shareholders, the hedge fund TCI, claiming that it hadn't properly disclosed the nature and extent of its stake in the company.
So Friday, April 4, TCI filed its answer to that complaint, along with its counterclaims.
The answer is, simply: Yes, we did too disclose. Or, in language sounding a bit less like it comes from a playground: "All of the material information regarding TCI's investment in CSX is public," referencing in particular the Hart-Scott-Rodino notice that TCI sent CSX more than a year ago, and that CSX in turn included in its SEC filings.
The most newsworthy of the counterclaims is that CSX and its chief executive, Michael Ward, have engaged in insider trader, through the mechanism of the timing of certain stock grants to executives eleven months ago.
Wednesday, March 19, 2008
Proxy Fight Updates
1. The New York Times has settled its dispute with hedge funds Harbinger and Firebrand.
The Times agreed Monday to expand its board of directors by two seats and appoint to those seats Scott Galloway and James Kohlberg. These are two of the nominees who had been on the dissident slate.
This resolution shows either (a) that even the Times with its dual stock structure isn't immune from outside pressures, or (b) that the Times has cleverly fending off a challenge by giving up seats that will prove meaningless, proving that it remains effectively immune to outside pressure.
Your call.
2. CSX files lawsuit.
As regular readers of Proxy Partisans know, the railroad corporation CSX faces a proxy challenge from the London-based hedge fund TCI which contends that the company should: separate the roles of chairman of the board and chief executive; refresh the Board with new independent directors; allow shareholders to call special shareholder meetings; align management compensation with shareholder interests; justify its capital spending plan to shareholders; and provide to shareholders a plan to improve operations.
On Monday, CSX filed a lawsuit in the federal court in Manhattan, where TCI's US operations are based. The allegations are fairly complicated, but the main point of the lawsuit involves federal laws that require that shareholders who own more than a threshold amount of the equity of a company to disclose this fact as they pass the threshold. The idea is to prevent an ambush -- to bring takeover contests and such out into the open.
CSX claims that TCI has played games to hide how much of CSX it owns, violating the threshold rules in fact while pretending to abide by them in name. TCI denies having done anything wrong.
3. Begelman, former Office Depot president, aims for a director's position.
Mark Begelman was president of Office Depot in the early 1990s. Martin Hanaka knows the office-supply business too. Hanaka is the former president of Staples. They are both now nominees for the Office Depot board, their names put forward by disaffected investors who want to fire Steve Odland, present CEO.
The company's annual meeting is scheduled for April 23. March 3 is the record date.
That's it for this week. We'll meet again Sunday, proxy-fight fans!
The Times agreed Monday to expand its board of directors by two seats and appoint to those seats Scott Galloway and James Kohlberg. These are two of the nominees who had been on the dissident slate.
This resolution shows either (a) that even the Times with its dual stock structure isn't immune from outside pressures, or (b) that the Times has cleverly fending off a challenge by giving up seats that will prove meaningless, proving that it remains effectively immune to outside pressure.
Your call.
2. CSX files lawsuit.
As regular readers of Proxy Partisans know, the railroad corporation CSX faces a proxy challenge from the London-based hedge fund TCI which contends that the company should: separate the roles of chairman of the board and chief executive; refresh the Board with new independent directors; allow shareholders to call special shareholder meetings; align management compensation with shareholder interests; justify its capital spending plan to shareholders; and provide to shareholders a plan to improve operations.
On Monday, CSX filed a lawsuit in the federal court in Manhattan, where TCI's US operations are based. The allegations are fairly complicated, but the main point of the lawsuit involves federal laws that require that shareholders who own more than a threshold amount of the equity of a company to disclose this fact as they pass the threshold. The idea is to prevent an ambush -- to bring takeover contests and such out into the open.
CSX claims that TCI has played games to hide how much of CSX it owns, violating the threshold rules in fact while pretending to abide by them in name. TCI denies having done anything wrong.
3. Begelman, former Office Depot president, aims for a director's position.
Mark Begelman was president of Office Depot in the early 1990s. Martin Hanaka knows the office-supply business too. Hanaka is the former president of Staples. They are both now nominees for the Office Depot board, their names put forward by disaffected investors who want to fire Steve Odland, present CEO.
The company's annual meeting is scheduled for April 23. March 3 is the record date.
That's it for this week. We'll meet again Sunday, proxy-fight fans!
Sunday, March 9, 2008
CSX and CEO Pay
Two different hearings on Capitol Hill last week pointed in two very different directions.
On Wednesday, the subcommittee on railroads -- a panel of the Transportation Committee -- held a hearing chiefly for the purpose of excoriating activist investors, especially the UK based fund TCI, who have lately been agitating for management changes at CSX. The general attitude of the solons doing the questioning (especially the subcommittee's chairwoman, whose district includes CSX's headquarters) was that the railroad has been doing a fine job, employs a lot of people, and how dare these Londoners come into this picture to mess things up.
On Friday, another house committee -- this time a full committee, Oversight and Government Reform -- held a hearing about CEO salaries. It turns out they're shockingly high. The general attitude of these solons was that managements get out of control, grant themselves salaries not checked by market forces, and it would be good to have some more activist investors holding them in check.
Do these two sets of committee members never even talk to each other?
On Wednesday, the subcommittee on railroads -- a panel of the Transportation Committee -- held a hearing chiefly for the purpose of excoriating activist investors, especially the UK based fund TCI, who have lately been agitating for management changes at CSX. The general attitude of the solons doing the questioning (especially the subcommittee's chairwoman, whose district includes CSX's headquarters) was that the railroad has been doing a fine job, employs a lot of people, and how dare these Londoners come into this picture to mess things up.
On Friday, another house committee -- this time a full committee, Oversight and Government Reform -- held a hearing about CEO salaries. It turns out they're shockingly high. The general attitude of these solons was that managements get out of control, grant themselves salaries not checked by market forces, and it would be good to have some more activist investors holding them in check.
Do these two sets of committee members never even talk to each other?
Sunday, February 24, 2008
CSX
The hedge fund TCI contends that the railroad company CSX (which I backgrounded for you in the previous entry of this blog) should: separate the roles of chairman of the board and chief executive; refresh the Board with new independent directors; allow shareholders to call special shareholder meetings; align management compensation with shareholder interests; justify its capital spending plan to shareholders; and provide to shareholders a plan to improve operations.
Much of the heat of this still-developing proxy fight was generated in single remark in the context of a teleconference last October (the 17th) called to discussed third-quarter earnings with the stock analysts.
One of the analysts on the line, Christian Wetherbee of Merrill Lynch, noted that CSX was measuring its return-on-investment figures against book value. He asked:
"Where do you think you stand on a replacement cost basis? I'm sure you guys have done the analysis. I'm kind of curious. Is it half that level? Is it, you know, somewhere in between? higher or lower?"
Book value: how much the RR paid for its locomotives and other assets, minus depreciation for their age.
Replacement value: how much it would have to pay for equivalent assets today.
Michael Ward, the chairman and CEO of CSX, replied: "Chris, what industry looks at their ROIC on a replacement cost basis? I don't know of any industry that does that."
TCI considers that remark fatuous: just short of a declaration that Mr. Ward is running a non-profit. They've got a point. It seems intuitively obvious that replacement cost is the more sensible market-driven measure, that book value allows more scope for slushy numbers. And surely somebody at CSX is keeping track of replacement value, even if that somebody isn't Mr. Wald!
Stock price? From the summer of last year until the start of this month, CSX stock was zig-zagging about in a range between $40 and $46. In recent weeks it has broken out of that price on the upside, going above $50. I won't try to give reasons for that move here.
One of the contentions of TCI is the classic corporate goo-goo point that the roles of CEO and chairman of the board ought to be separated, that the coach and the quarerback ought to be different folk. What's behind that contention in this case is chiefly that Mr. Ward is both of those things, and TCI doesn't trust him to do either job, but would rather have him stay on in just one of them than in both.
Much of the heat of this still-developing proxy fight was generated in single remark in the context of a teleconference last October (the 17th) called to discussed third-quarter earnings with the stock analysts.
One of the analysts on the line, Christian Wetherbee of Merrill Lynch, noted that CSX was measuring its return-on-investment figures against book value. He asked:
"Where do you think you stand on a replacement cost basis? I'm sure you guys have done the analysis. I'm kind of curious. Is it half that level? Is it, you know, somewhere in between? higher or lower?"
Book value: how much the RR paid for its locomotives and other assets, minus depreciation for their age.
Replacement value: how much it would have to pay for equivalent assets today.
Michael Ward, the chairman and CEO of CSX, replied: "Chris, what industry looks at their ROIC on a replacement cost basis? I don't know of any industry that does that."
TCI considers that remark fatuous: just short of a declaration that Mr. Ward is running a non-profit. They've got a point. It seems intuitively obvious that replacement cost is the more sensible market-driven measure, that book value allows more scope for slushy numbers. And surely somebody at CSX is keeping track of replacement value, even if that somebody isn't Mr. Wald!
Stock price? From the summer of last year until the start of this month, CSX stock was zig-zagging about in a range between $40 and $46. In recent weeks it has broken out of that price on the upside, going above $50. I won't try to give reasons for that move here.
One of the contentions of TCI is the classic corporate goo-goo point that the roles of CEO and chairman of the board ought to be separated, that the coach and the quarerback ought to be different folk. What's behind that contention in this case is chiefly that Mr. Ward is both of those things, and TCI doesn't trust him to do either job, but would rather have him stay on in just one of them than in both.
Wednesday, February 20, 2008
Working on the railroad
CSX Corp., a railroad headquartered in Richmond, Va., is in an increasingly bitter dispute with TCI, a British hedge fund, over what the hedge fund sees as CSX' incompetent management, and what the railroad sees as the hedge fund's potentially ruinous effirt to produce a perpetual running recall election.
CSX this month has amended its bylaws to provide that a special meeting would be called only after the company received a written request from shareholders representing at least 15 percent of its voting power.
I'll wait until next week to detail this fight somewhat for you. For now, here is a little history. Its corporate ancestors include The Baltimore and Ohio Rail Road Company, one of the four railroads known to every enthusiast of Monopoly, the famous board game.
The B&O, America's first common carrier, was chartered in 1827. Its first rails were useful only for the purpose of assisting the horses, making the carriage-pulling work a bit easier. Steam replaced horses three years later.
The B&O was acquired by the Chesapeake & Ohio -- which had been a canal company in the old days, when proponents of canals and rail debated over who represented the future -- the acquisition didn't happen until the early 1960s, and the present name, CSX, was originally suggested by the phrase, "Chesapeake, Seaboard, and many things more."
Last year, CSX spent $3.2 million on Washington lobbyists. At least some of that money went into the company's support for legislation that would require hedge funds to register with the SEC -- oops, we've wandered back into the TCI/CSX controversy again, haven't we?
Til we meet again.
CSX this month has amended its bylaws to provide that a special meeting would be called only after the company received a written request from shareholders representing at least 15 percent of its voting power.
I'll wait until next week to detail this fight somewhat for you. For now, here is a little history. Its corporate ancestors include The Baltimore and Ohio Rail Road Company, one of the four railroads known to every enthusiast of Monopoly, the famous board game.
The B&O, America's first common carrier, was chartered in 1827. Its first rails were useful only for the purpose of assisting the horses, making the carriage-pulling work a bit easier. Steam replaced horses three years later.
The B&O was acquired by the Chesapeake & Ohio -- which had been a canal company in the old days, when proponents of canals and rail debated over who represented the future -- the acquisition didn't happen until the early 1960s, and the present name, CSX, was originally suggested by the phrase, "Chesapeake, Seaboard, and many things more."
Last year, CSX spent $3.2 million on Washington lobbyists. At least some of that money went into the company's support for legislation that would require hedge funds to register with the SEC -- oops, we've wandered back into the TCI/CSX controversy again, haven't we?
Til we meet again.
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