Tuesday, November 20, 2007

CSX Replies and Misses the Point

Full disclosure. I am no longer a CSX (CSX) shareholder as we swapped out of it and into Citigroup (C) recently. Now, to the letter.

First things first. Here is the letter.

The letter essentially lays out the accomplishments of management the past several years as the reason to dismiss every proposal made by TCI. Here is the problem with doing it that way. CSX still trails and ranks at the bottom of the major railroads in several key metrics.

Yes they have improved but, and this is the point that TCI was making, that improvement was due to a resurgence of the industry they operate in, not necessarily due to deft management. TCI argues that had management been better, the improvement at CSX would have been much greater and shareholders would have been rewarded much more.

What CSX is saying is akin to a sprinter after a race saying, "I beat my best time by 4 seconds, but still came in fourth, can I have a medal please?" No, you can't. I does not go that way. Your improvement still places you in last place.

CSX has placed itself into a precarious situation now. They are triumphing the stock price as a reason not to change. But, if we slide into a recession one can bet that the stock price will reverse and then CSX needs another excuse to ignore TCI. This will make the board look questionable at best, hen pecked at worst.

CSX is ignoring the railroad industry fundamentals and how much that has driven their success while at the same time taking too much credit for them. Their improvement, while very good, was not as good as their peers and when the economy slows down and their situation deteriorates faster than the other railroads, the reasons they gave for brushing off TCI will come back to haunt them.

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