Monday, June 30, 2008


The activist hedge funds are claiming that they won four of the five seats at issue (at a 12-seat board of directors) at last week's CSX shareholder's meeting.

The company says the vote is too close to call.

The official results are due in late July, and oral arguments about some of the legal issues this proxy fight has stirred up will take place before the appellate court in early August.

The legal issue that fascinates me is 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. These rights can be severed from one another by statute or precedent.

Well, okay ... point taken. Still, there's something to be said for the naive view. The bundle is not arbitrary, the acts of severance that have historically made it look more like a fascis than like a single stout branch -- that has been arbitrary.

With the ownership of stock in particular, I submit that we need to stick with the single stout branch, and that the position of CSX in that respect is the more sound.
The hedge funds are trying to 'own' stock through "total return swaps" in a way that remains largely opaque to the market and their fellow shareholders.

Though they might be right about much, they are wrong about this.

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