UPDATE:Judge Denies CSX Motion For Injunction Pending Appeal
Thursday June 12nd, 2008 / 23h40
(Adds details of CSX's injunction request beginning in third paragraph.) By Chad Bray Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- A federal judge on Thursday denied a request by CSX Corp. (CSX) for an injunction pending appeal in a dispute with two hedge funds seeking to shake up CSX's board. In a one-sentence order, U.S. District Judge Lewis A. Kaplan in Manhattan denied an application for an injunction pending appeal "made and heard orally in a conference call with counsel for all parties" on Thursday. CSX asked the court to essentially hold in escrow shares to be voted by hedge funds The Children's Investment Fund Management LLP, or TCI, and 3G Capital Partners LP at CSX's annual meeting June 25 if the 2nd Circuit Court of Appeals hasn't made a decision the case by then. On Wednesday, Kaplan said he was precluded from blocking the hedge funds from voting their shares at the annual meeting. The hedge funds have nominated a competing slate of five directors for CSX's 12-member board. The Jacksonville, Fla., railroad operator is expected to appeal that ruling as early as Friday. A CSX spokesman didn't immediately have a comment when contacted Thursday. In his ruling Wednesday, Kaplan said he ultimately agreed with CSX that TCI and 3G skirted certain disclosure requirements in the months prior to a bitter and public proxy fight over the railroad operator's board. However, the judge said the disclosures, while belated, failed to cause irreparable harm to the company's shareholders. As result, he only granted CSX's request to enjoin the funds from future violations of securities laws. "Were the court free as a matter of law, however, to grant such an injunction, whether on basis that such relief is warranted to afford deterrence or on another basis, it would do so," Kaplan said. CSX had claimed the funds "secretly coordinated" their efforts to gain effective control of the company's board and didn't properly disclose their full stake in CSX as required under federal securities laws - namely their holdings through swap transactions. The funds had alleged that CSX Chief Executive Michael Ward and the company's directors acted in their own self-interest, and not that of shareholders, by trying to derail the funds' proxy efforts. Kaplan held a two-day bench trial last month that featured testimony by Ward and top executives at the funds. In a letter to shareholders Thursday, CSX urged shareholders to consider the judge's ruling when evaluating the hedge funds' slate of directors. "Unfortunately, the court concluded that the law does not permit it to grant relief that would prevent the TCI Group from gaining the benefit of its illegal activity in the proxy contest," CSX said in its letter. "We urge you to consider carefully these violations and the pattern of deceptive conduct from the TCI Group - including false testimony under oath - as you evaluate whether the TCI Group nominees are fit to serve on the board of a U.S. public company." - Chad Bray; Dow Jones Newswires; 212-227-2017; chad.bray@dowjones.com
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