Canadian Pacific Railway shareholders elect Pershing Square nominees to board

Canadian Pacific Railway Ltd. (CP.TO) chief executive Fred Green conceded defeat in a long, bitter proxy battle with New York activist shareholder William Ackman on Thursday, resigning from his job and clearing the way for a management overhaul at the country’s second-biggest railroad.

The boardroom coup, a rarity in Canada’s conservative corporate culture and particularly for such a venerable company, burnishes Ackman’s reputation as a tenacious activist investor.

The early morning announcement was a big climbdown for CP, which for months had backed 55-year-old Green as the best man for the CEO job, arguing that customers were concerned by a change in senior management.

CP said chairman John Cleghorn, Green and four other directors would not stand for re-election at its annual shareholder meeting on Thursday, opening the door to all seven nominees from Ackman’s Pershing Square Capital Management to join the 16-member board.

“Ackman obviously delivered his proxies and the initial count showed it wasn’t close,” said Brad Allen, senior vice-president at proxy solicitation firm Laurel Hill Advisory Group, which was not involved in the conflict.

“He must have delivered his proxies yesterday (or maybe earlier) and likely suggested that certain of board members resign to avoid embarrassment at the actual meeting.”

Ackman, whose fund is CP’s largest shareholder with a 14.1-per-cent stake, has been the driving force for change since announcing his investment in the Calgary-based company in October.

CP’s lagging performance can only be turned around under a new CEO, Ackman has argued, a view that found favour with large institutional shareholders and the proxy firms that advise them.

Ackman wants to replace Green with former Canadian National Railway (CNR.TO) CEO Hunter Harrison, who is credited with boosting efficiency at CN, cutting costs and pushing employees to make the trains run on time.

There are several candidates for the top job at CP, Ackman told reporters in Calgary, but he cautioned that the company “will not make progress overnight.”


Founded in the 1880s to link Canada from coast to coast, CP reinvented itself as a pure railroad a decade ago, spinning off operations that included hotels, coal and shipping.

But its operating ratio, a key industry barometer that measures efficiency, has lagged CN since the mid-1990s.

In the first quarter, CP’s operating ratio was 80.1 per cent, while CN’s was 66.2 per cent. The lower the number, the better the railroad’s performance.

CP, which is expanding the size of its board to 16 from 15, said the new board would include all Ackman’s nominees, along with nine of its former board members, and it noted that the changes reflected the views of shareholders.

The company’s announcement came just as Barclays raised its rating on CP shares to “overweight” from “equal weight.”

“Renewed operational discipline should drive material improvement, with the potential to nearly double the current earnings base of the company,” Barclays analyst Brandon Oglenski said in a note to clients.

“CP does trade near the top of railroad valuations, but with meaningful earnings growth potential, we see significant value in the company’s shares,” said Oglenski, who raised his price target on CP shares to $93 from $81.

But not everyone welcomed the news of a new CEO. Brian Lancaster, a member of the Teamsters union who has worked at CP for 30 years, said job security was a concern.

“We’re not much better off with Hunter Harrison,” he said before the meeting started. “At CN, there was a lot of discontent among employees. No one wants to be in fear of losing his job.”


CP, which has put part of the blame for its lacklustre operations on the steep Rocky Mountain grades its trains must climb, recently claimed it was on the comeback trail.

It touted quarterly results in April as proof that its improvement plan was on track, but shareholders were not swayed, even as profit quadrupled and operations improved.

A ballot box defeat looked inevitable after several large shareholders and three proxy advisory firms endorsed Ackman’s entire slate of nominees.

Proxy firms – whose advice to large institutional investors ahead of shareholder votes typically influence votes for or against management – rarely support an entire slate.

This month, Ackman ruled out any possibility of a compromise ahead of the vote, saying the railroad’s shareholders should have the opportunity to vote on which board members should stay on.

While Ackman will not have control over the 16-member board, his seven-member slate provides the clout he needs to push for a management change.

A self-described “direct” communicator, Ackman made a $1.4-billion bet that he could push for management change, improve operations and gain from a rising stock price.

Relations between CP and Ackman turned ugly in January, when CP chairman John Cleghorn issued a public letter that scolded the hedge fund manager for pressuring the railway to replace its CEO by leaking information to the media.

In an email titled War and Peace, Ackman repeated his request for two seats on the board and Harrison to take over as CEO. “Let’s avoid having a border skirmish turn into a nuclear winter. Life is too short,” he wrote.

Source : Montreal Gazette

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