Bill Ackman - Date/Photographer unknown.

3 January 2012

Ackman Requests CP Board Meet with Former CN CEO

Calgary Alberta - Sparks were flying Tuesday between Canadian Pacific Railway Ltd. and its activist shareholder, Bill Ackman, who formally requested that the company's board meet with the former head of Canadian National Railway Co., Hunter Harrison, in an effort to see him replace CP's current chief executive officer, Fred Green.
 
"Our plan is to transform Canadian Pacific from the worst performing railroad in North America into one of the best by effectuating a cultural and operational transformation of Canadian Pacific, which begins with a new leader," Mr. Ackman wrote in a letter addressed to CP's chairman, John Cleghorn.
 

John Cleghorn - Date/Photographer unknown.
 
"We believe there is tremendous untapped operating potential at Canadian Pacific," he added. "We, and we expect, the vast majority of the company's employees, shareholders, analysts, and other stakeholders believe that Hunter can realize this potential given the opportunity."
 
The war of words was kicked off Tuesday after Mr. Cleghorn made public a letter addressed to Mr. Ackman, in which he denied that any board member at CP has expressed enthusiasm for Mr. Ackman's proposal to replace Mr. Green with Mr. Harrison. He accused Mr. Ackman of trying push the agenda of his New York-based hedge fund, Pershing Capital Management LP, by spreading "inaccurate" comments in the media.
 
But Mr. Ackman fired back saying that wasn't the case. He alleged Mr. Cleghorn himself had asked Mr. Ackman to approach Mr. Harrison in November, but was informed by Mr. Ackman of a non-compete clause Mr. Harrison had in a contract with CN that would prevent any such discussion with him until its expiration on 31 Dec 2011.
 
"You called me at home and asked that I arrange a meeting with him. Neither you, nor Canadian Pacific expressed concern about Hunter's contract with Canadian National at that time," Mr. Ackman wrote.
 
Mr. Ackman also alleges in the letter that he was forced to reject a spot on CP's board because of an agreement he would have had to sign that would have forced Pershing Capital to vote in favour of each of the board's nominees for election and to vote with the board's recommendations with respect to any matter proposed by shareholders in the company.
 
"In essence, in exchange for one board seat, I am being asked to support the recommendations of a majority board and each director's nominations whether I am in agreement with these recommendations or not," he said. "I am unwilling to tie my hands."
 
Mr. Ackman said he was also disappointed that CP's board nominating committee was unwilling to meet with another unnamed candidate he had flown from New York to Calgary Sunday night. He said this further emphasized the need for more than one Pershing Square representative on the board, which he has also put forth as a proposal.
 
"In order for Hunter to be successful, he must have the full support and backing of the board of directors," Mr. Ackman said. "For this reason, we have asked for two board seats so that we can work with the board and Hunter to effectuate the changes that are required."
 
Mr. Ackman's Pershing Capital has spent more than US$1-billion to accumulate roughly 14.2 percent of CP's outstanding shares in recent months. Mr. Ackman has said that he believes the stock is undervalued, and that its current management has not done all that can be done to improve the efficiency of the railway.
 
As a result, he also requested in his letter Tuesday that CP's board meet with Mr. Harrison in an effort to see him take over as CEO of CP, as well as the other proposed director candidate.
 
"We ask that such meeting take place as soon as practicable," Mr. Ackman said. "I can't imagine there is anything more important and time sensitive for the board to consider."
 
Mr. Harrison, 67, has garnered an admirable reputation in the rail industry after transforming CN from a once-bloated former Crown Corp. to the top North American railway in terms of operating efficiency as CEO from 2003 until his retirement at the end of the 2009. Prior to that he had been CN's head of operations after it gobbled up his Illinois Central railway.
 
Under the terms of Mr. Harrison's non-compete agreement with CN, he was unable to engage in, or work with, any business competing with CN until 31 Dec 2011. He is further unable to solicit employment of any CN employee until the end of 2012, and there are other conditions attached to his retirement and pension arrangement may be compromised if he competes against CN or solicits any of its employees before the end of 2014, a spokesman for the railway said.
 
CP had no comment on the allegations contained in Mr. Ackman's letter.