January 24, 2012 5:14 pm

Pershing pushes to revamp board at CP Rail

Pershing Square Capital Management, the hedge fund run by activist investor Bill Ackman, has launched a proxy fight to replace at least five of Canadian Pacific Railway’s 15 directors.

The move marks another escalation in Mr Ackman’s drive to oust CP Rail’s current senior management, which he blames for the company’s mediocre performance.


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Pershing has built up a 14.2 per cent stake in the Calgary-based rail operator since last autumn, making it the biggest single shareholder.

In another sign of rising tensions around the 130-year-old company, its arch-rival, Canadian National, said that it had suspended various payments and benefits to Hunter Harrison, CN’s retired chief executive, whom Mr Ackman has recruited as his preferred choice to take the helm at CP Rail.

CN alleges that Mr Harrison has breached the conditions of an agreement at the time of his retirement in 2009, which include not competing against CN for a period of five years, and never disclosing confidential CN information. Mr Harrison has not commented on CN’s allegations.

Mr Ackman said in an interview that Pershing had agreed to indemnify Mr Harrison for any financial losses as a result of CN’s action “so that it doesn’t distract him from the job at hand”.

CP Rail shareholders will vote on Pershing’s slate of directors at the annual meeting on May 17.

“We’re seeking a mandate for management change from shareholders”, Mr Ackman said. He expressed confidence that the rest of the board would go along with his plan if his five nominees – three Canadians and two Americans – are elected.

Ousting a majority of directors would amount to a change of control which, among other things, would trigger a C$26m ($25.7m) golden parachute for CP Rail’s current chief executive, Fred Green. “That’s just a complete waste and we don’t want that to happen”, Mr Ackman said.

CP Rail has been one of the weakest performers among North America’s seven big Class I railroads. But it contends that it is limited by factors beyond its control, such as mountainous terrain and severe winter weather along much of its network, and far less double-tracking than CN.

CP Rail has so far offered Pershing one seat on the board, and has vigorously defended its performance.

Mr Green told employees last week that CP Rail would meet its target of reducing its operating ratio – which measures costs as a proportion of sales – to slightly above 70 per cent within the next three years, from 78 per cent in 2010.

However, he added, “contrary to what Pershing Square has stated, we do not believe that an improvement in operating ratio from 78 in 2010 to 65 in 2015 is achievable. This pace of improvement, from this starting point, has never been achieved by any railway management team.”

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