3G and T.C.I vs. CSX: a High-Stakes Legal Clash between 3 Sinister-Sounding Acronyms

 

3G’s Managing Partner Alexandre Behring, was named in an earlier confrontation between 3G Capital and a US court.

Mr. Behring helped to manage the Heinz deal and the deal in which 3G acquired Burger King Worldwide Inc. in 2010.

Behring was also named in a case in which a U.S. District Court found, in June 2008, that 3G Capital, whilst working with the UK’s Children’s Investment Fund “violated” federal securities laws.

These were obscure violations to be sure, but the judgement is there.

These laws surround the necessity to disclose ownership of holdings in listed corporations.

Basically, the violations relate to the Williams Act’s Section 13(d) requirements, which require that any person or entity who owns more than 5 percent of a public company file a Schedule 13(d) with the Securities and Exchange Commission disclosing such ownership.

The case at hand came after TCI and 3G attempted to gain control of CSX Corporation, the enormous U.S. transportation conglomerate, through a combination of stock buying and acquisition of cash-settled derivatives.

The CSX management in place at the time were  not happy about this attempt to gain control.

CSX management alleged that T.C.I reached a 5%-ownership threshold long before publicly disclosing that fact.

CSX filed suit contending that T.C.I., through its bank’s hedges had a reportable interest in CSX.

CSX argued that T.C.I. had an arrangement with its banks to vote the controlled stock in T.C.I’s favour

CSX’s also claimed 3G and T.C.I. were acting as a group prior to the time T.C.I. had actually filed a Schedule 13(d).

The Court of the Southern District of New York ruled, after a remarkable delay of about 2 years, that:

“The defendants violated Section 13(d) in that (1) TCI did not file the required disclosure within 10 days of acquiring beneficial ownership in 5 percent of CSX shares, and (2) TCI and 3G failed to file the required disclosure within 10 days of forming a group.”

Further excerpts:

“Court finds that [Christopher] Hohn [of TCI] and [Alexandre]
Behring [of 3G] are jointly and severally liable for the violations of
Section 13(d).”
— “Defendants have sought to control CSX for over a year. As obstacles to
control surfaced, they adapted their strategy for achieving control,
making disclosures only when convenient to their strategy. Defendants’
latest strategy for control will be tested at the annual shareholder
meeting. And if this strategy is not successful, the Court perceives a
substantial likelihood that the defendants would craft a new strategy
for control without regard to their disclosure obligations.”

In keeping with the obscurity of this case, T.C.I. and 3G were, following appeal, only enjoined to amend their Schedule 13(d) to report the position, something they had already done. Judge Kaplan would not take the harsher step of barring T.C.I. and 3G from voting their shares — in effect sterilizing the holdings.

Even so, the T.C.I./3G attempt to gain control wilted in the end.

You may be minded to read more here, if you’ve made it to the end of this section.

ThSM