William Ackman, founder and chief executive officer of Pershing Square Capital Management.

28 October 2011

Pershing Square Buys Stake in Canadian Pacific

Canadian Pacific Railway could be in for a major shake-up after the fund of famed activist investor Bill Ackman said it has suddenly become the Calgary-based company's biggest shareholder.
 
In a regulatory filing late Friday, Pershing Square Capital Management said it had acquired 20.6 million shares, roughly 12.2 percent of the Calgary based company, and that it expects to lobby the board and management concerning all aspects of the business.
 
In the 13D filing with the U.S. Securities and Exchange Commission, Pershing called shares of CP "undervalued."
 
Shares of Canada's second largest railway leap almost 10 percent in after hours trading after the filing was disclosed. Including a late surge in the regular session before the news was fully disclosed, CP shares were up a total of 14 percent Friday.
 
Mr. Ackman is no passive investor. He almost always pushes for major changes at the company he buys into, hoping to increase value. Those changes often include asset divestitures and he could advocate for a sale of the entire railway.
 
As a recent profile in the magazine Bloomberg Business Week put it recently, Mr. Ackman "is an open, friendly, talkative guy, who makes a lot of companies... miserable".
 
It goes on to describe him as such:  "Ackman, 44, isn't shy about taking his case to the media, either, if he feels he isn't getting the proper amount of attention. At 6 feet, 3 inches tall and with prematurely gray hair, he looks rather like a congressman. What really frustrates managers of his target companies is how charmingly he goes about his business, which makes it hard for them to paint him as a crank and brush him off."
 
The fund paid US$1.07-billion for the stake and has already made about US$370-million on paper.
 
In 2007, Two years ago, when the so-called rail renaissance was at its peak, Toronto investment house Brookfield Asset Management Inc. was one of a handful of private-equity firms to look at CP when its shares were trading above $70. A deal at the time was estimated to be worth more than $15-billion.
 
But CP management rebuffed Brookfield and others, and in ensuing months acquired Dakota, Minnesota & Eastern Railroad for nearly $1.5-billion in what was then deemed a defensive move against future offers.
 
CP has tried to focus on increasing its efficiency, but it has lagged behind its bigger rival Canadian National Railway by most measures for several years.
 
Earlier this week, CP posted results that were lower year over year and fell below some analyst estimates. In particular, the railways intermodal volumes continue to suffer with carloads down 10 percent year over year.
 
Those weak volumes are, in part, a result of lost business to its rivals, especially CN, after it suffered from operational issues earlier in the year due to massive floods, avalanches, and other weather related incidents. CP chief executive Fred Green has said he is committed to winning that business back.
 
The railway's operating ratio, an important measure of its expenses as a percentage of its sales, was 2 percentage points worse than a year ago though during the quarter at 75.8 percent.