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13 January 2012

Canadian National and Pershing Square Clash Over Retired Executive Harrison

Montreal Quebec - Canadian National has stoked the increasingly public battle over whether its former CEO will be installed as the head of rival Canadian Pacific, warning Friday that Hunter Harrison may be in breach of non-compete agreements.
 
Harrison, who retired from CN at the end of 2009, is being championed as CP's new CEO by its largest shareholder.
 
"CN has asked Mr. Harrison to respect his commitments to CN and to reconsider his expressed interest in a position at Canadian Pacific Railway Ltd.," Canada's largest railway said in a statement. "CN has also put William A. Ackman of Pershing Square Capital Management, L.P., on notice to cease any efforts to induce breaches of Mr. Harrison's contractual obligations to CN."
 
Ackman's Pershing Square owns a 14.2 percent stake in CP and his plans to improve the Calgary-based railway's performance hinge on Harrison, credited with turning around CN and more than tripling its net income during his seven years at the helm.
 
Where CN is one of the most efficient railways in North America, CP and its 22,400 kilometre network ranks at the bottom and has struggled over the past year with weather and customer service woes.
 
CP's board of directors has made it clear they stand behind current CEO Fred Green and the plan in place to improve operating efficiency and financials, which has led to Ackman promising a proxy battle with a minority slate of candidates who agree with his vision for the company's future.
 
CN's stance shows Harrison is the right man for the job at CP, Ackman said.
 
"They think highly enough of him that they're scared to death," he said in an interview from New York. "If a company of CN's stature is threatened by Harrison taking the job, then that's the man you want to hire."
 
Ackman said three top law firms in Toronto, New York, and Illinois, where Harrison's contract is based, reviewed the agreements before Pershing Square proposed him as CEO.
 
"We never asked him for anything confidential and he didn't tell us," Ackman added.
 
Pershing Square started acquiring CP shares last fall, at a cost of almost US$1.3 billion, with Ackman saying the shares were undervalued.
 
Initially the talks between Ackman and CP were held behind closed doors with both sides saying little.
 
But at the end of the year, just before one of Harrison's non-compete clauses with CN was about to expire, stories began surfacing about Ackman wanting the 67-year-old to take the reins at CP.
 
CP responded by re-affirming its support of Green and calling attention to its concerns about Harrison's exit deal with CN.
 
Canadian National released details of the retirement agreements, which included the two-year non-compete that ended 31 Dec 2011, a three-year undertaking that Harrison not solicit CN employees for jobs, and a condition of his pension and retirement arrangements that he not compete with CN for five years, ending 31 Dec 2014.
 
"As part of his employment contract with CN, Mr. Harrison agreed, upon retirement as president and chief executive on 31 Dec 2009, to be bound by a broad range of confidentiality and multi-year non-competition and non-solicitation provisions," the company stated Friday. "CN's board of directors is closely reviewing all developments concerning these matters with a view to enforce Mr. Harrison's contractual obligations to CN and take all actions necessary to protect the legitimate interests of the company."
 
Ackman said Harrison would lose his pension if he took a job with CP, but believes the cost to the company to cover it is "small in the context of the value he can create at Canadian Pacific."
 
David Tyerman, an analyst at Canaccord Genuity, called the evolving situation "pretty unusual circumstances."
 
"It's clear CN would prefer Mr. Harrison not go (to CP)," he said. "There's definitely a lot of wait and see, because there's a lot of unknown stuff here. Until we get some clarity on what all this means, it's hard to say what's going to transpire. There's a lot of murk, sadly."
 
Ackman has said he will hold an investor day in February, giving shareholders and others a chance to speak with Harrison. After that, a slate of new directors would be proposed, like in time for CP's annual general meeting.
 
Kim Guttormson.