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Railroad puts self on block
Fighting ex-CEO takeover try, Wisconsin Central hires
Goldman to study sale
By Staff Writer Chris Isidore
November 3, 2000: 1:25 p.m. ET
NEW YORK (CNNfn) - Seeking to hold off a takeover effort by its founder and
former chief executive, Wisconsin Central Transportation Corp. hired Goldman
Sachs & Co. Friday to explore a possible sale of the company.
But Edward Burkhardt, who was ousted from the regional railroad company's top
spot in August, 1999, vowed to continue his effort to replace the board and top
management.
"The boys see the handwriting on the wall," he said in an interview Friday.
"This is a deathbed recanting of their previous policies. The shareholders will
have to determine which group they have more confidence in to implement the
policy."
The company's statement Friday said that it would be evaluating strategic
alternatives including, but not limited to, a sale of the company or a
divestiture of its international holdings. Those holdings include minority
stakes in freight railroads in Britain, Australia and New Zealand.
The company's North American operations include 2,850 miles of track in the
Great Lakes region. It is the largest company within of a classification known
as a "short-line railroad," which generally move freight between rail customers
and the major railroads' tracks or yards.
[graph of Wisconsin Central stock prices from approximately $32 per share in
11/97 to approximately $15 per share in 11/00]
Shares of Wisconsin Central (WCLX: Research, Estimates) stock gained $1.50, or
10.7 percent, to $15.50 in trading Friday, after the announcement about hiring
Goldman. Shares are up $4.88, or 46 percent, since Burkhardt announced his
takeover efforts Oct. 22.
Management insists it can best change company
Company officials were not available for comment Friday. In their own SEC filing
soon after Burkhardt's efforts were made public, the company's management
insisted it is getting the company back on the right track with a reorganization
of North American operations.
"The Burkhardt Group's so-called "program" for maximizing the value of the
company in part mimics the company's announced strategy, but adds a naive,
unworkable liquidation plan," said the filing. "We are 13 months into a
difficult program of restoring shareholder value. Switching members of the board
and management at this time risks delaying or significantly reducing
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the pace of change necessary to complete the restoration of shareholder value.
Moreover, returning control of the company to Mr. Burkhardt, under whose
leadership the erosion occurred, turns back the clock."
Burkhardt said that he recommended selling the minority stakes in the company's
overseas operations due to disagreements with investment partners about the
management plans for those railroads, and that rejection of that proposal by
Wisconsin Central's board was one of the factors that led to his departure from
the company.
"I believe that all three of those were fundamentally very sound companies and
would have been a major success with a united management perspective," he said.
Challenger says he has needed support
Burkhardt's filings with the Securities and Exchange Commission state he owns
3.5 million shares, or about 7.2 percent of average shares outstanding during
the recently completed third quarter. Southeastern Asset Management made a SEC
filing earlier this week that said it intended to vote its 14.4 percent stake in
the company with Burkhardt, and Burkhardt said he's been told by other major and
minor shareholders that he has their support.
"We think we'll have sufficient support to prevail," said Burkhardt, who has run
a rail consulting business known as Rail World Inc., since his departure from
Wisconsin Central. "We'll know when we get there."
A source close to the company, who spoke on condition his name not be used,
conceded that Burkhardt's efforts were a factor in the hiring of Goldman, but
said it was only a part of the company's efforts to reorganize and improve
shareholder valued.
"No one is happy with the way the stock has performed recently, and some of that
started under Mr. Burkhardt's tenure," said the source.
[photograph of Edward Burkhardt]
Edward Burkhardt
Wisconsin Central founder waging takeover effort. (Source: Rail World, Inc.)
The source said that the company believes a sale to one of the nation's major
railroads was possible, despite a 15-month moratorium on major rail mergers
imposed by the Surface Transportation Board, which regulates the rail industry,
earlier this year. That's because Wisconsin Central is considered a collection
of three different "class 2" regional railroads, rather than a "class 1"
national railroad.
Burkhardt said he believes a sale of the overall company would be blocked by the
current rail merger ban, although he and the company source agree that a sale of
its overseas holdings would not be affected by the STB's moratorium. A spokesman
with the agency said that he couldn't speculate on such a transaction since
there was no proposed purchase filed with the board.
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A sale to an investor group or non-rail company would clearly not be blocked by
the merger moratorium.
Institutional investors own about three-quarters of the company. Among the
groups that has filed its ownership stake with the SEC is Cascade Investments
LLC, the group that manages the investments of Microsoft Corp. Chairman William
Gates. It said in an April 28 filing that it owned 3.6 million shares, or about
7 percent of the company.
