31 January 2006
CP Rail is the Only Company Left Standing of Former Conglomerate CP Ltd.
Just five years after Canadian business icon Canadian Pacific Ltd. splintered into five separate
companies, only Canadian Pacific Railway remains intact while the others have transformed or been taken over.
"The railroad, which was the very beginning, is now the last standing," Fred Larkin, an analyst with Orion Securities in
Toronto, said Monday. Canadian Pacific Railway Co., was formed 125 years ago by Prime Minister John A. Macdonald and played a major
role in the history of the country when it completed its cross-Canada railroad in 1885.
Over the next century, the conglomerate entered into a variety of different businesses, but by 2001 when the decision was made to
break up CP, there were five divisions: CP Rail, PanCanadian Energy, CP Ships, Fording Coal and Fairmont Hotels.
For its part, Fairmont Hotels announced Monday its board is supporting a $3.3-billion-US takeover offer from a
partnership of foreign investors.
Back in 2001, the argument was that each of the five businesses were mature enough to stand on their own and generate more cash for
investors than they could as a group.
"And that's indeed what they did," said Larkin.
Larkin says had CP investors kept the shares of all five of the baby CP companies they received in 2001, "they would have
benefited mightily."
CP Rail, which unveils its 2005 earnings Tuesday morning, has enjoyed a strong year with commodities like wheat and coal. Traffic
between China and the Asian market also continues to grow at unprecedented levels.
The railway's shares have gained more than 30 percent in the last year, closing Monday up 30 cents to $55 on the Toronto stock
market.
But other parts of the CP conglomerate have disappeared from the Canadian business landscape altogether. PanCanadian Petroleum,
seen as the jewel in the CP crown, didn't last a year.
Immediately after it began trading as a separate company, rumours swirled that PanCanadian would fall prey to a U.S. firm,
following a trend in the early 2000s that saw the disappearance of many of Canada's mid-tier energy companies like
Gulf Canada, Anderson Exploration, and Canadian Hunter.
Instead, PanCanadian agreed to a join forces with main rival Alberta Energy Co., in order to create EnCana Corp., which from the
outset was designed to be a Canadian based energy independent with the size and money to compete with the biggest on the continent.
After nearly four years of honing its focus and selling major non-core properties, Calgary-based EnCana
is currently North America's largest natural gas producer and one of the most dominant firms in the Canadian oilpatch.
It is also one of Canada's most valuable companies, with a stock market value of more than $46.5 billion.
Fording emerged into an income trust three years ago as part of a complicated solution to avoid a hostile takeover attempt by
Sherritt International.
And while the Fording name remains, it is a substantially different company than it was upon leaving the Canadian Pacific family.
In early 2003, Canada's largest coal companies, including Vancouver-based Teck Cominco, divvied up their assets with
the thermal coal mines going to Sherritt. The metallurgical coal mines, primarily in southeastern B.C., were combined to form the
Elk Valley Coal Corp.
Elk Valley, which is 60 percent controlled by the Fording trust, is now the world's second-largest producer of
metallurgical coal, which is used in blast furnaces as fuel to make steel.
CP Ships, which had a major presence in the North Atlantic, was acquired last August in a friendly, $2.4-billion deal
from German travel and shipping giant TUI AG that paid investors a 10 percent premium.
The shipping company, which moved its head office to London following the dissolution of CP Ltd., was a major competitor to TUI's
Hapag-Lloyd unit.
But it had been on the auction block months before the deal, and company executives said other factors weighed into the decision
to sell, including a potential downturn in the global shipping industry over the next two years and limits to CP Ships' growth as
it faced competition from larger, consolidated competitors.
Fairmont, which owns some of Canada's most recognizable hotels like Ottawa's Chateau Laurier and Toronto's Royal York, said Monday
its board is supporting a friendly takeover offer by a high-powered partnership between Kingdom Hotels which is owned
by a Saudi prince and Colony Capital, a private equity firm from Los Angeles.
The hotel chain was already fighting an attempt by U.S. financier Carl Icahn to take control of the company.
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