A Canadian Pacific coal train somewhere in the West - Date/Photographer unknown.

27 February 2012

CP Rail Still Has Some Tricks in Pershing Fight

Toronto Ontario - Canadian Pacific Railway Ltd. still has some tricks up its sleeve, and investors are being encouraged to wait until they appear before casting a vote in the railway's proxy battle with activist investor, Bill Ackman.
 
Benoit Poirier, Desjardins Securities analyst, met with CP's management last week, and he said he was encouraging investors to wait for the outcome of an independent study commissioned by the railway to quantify the differences between CP and its larger rival, Canadian National Railway Co., as well as the rail data from the first quarter.
 
CP in recent months has been locked in a battle with Mr. Ackman whose New York hedge fund, Pershing Square Capital Management LP, is seeking to replace the company's chief executive, Fred Green, with Hunter Harrison, the former CEO of CN.
 
The move has been resisted by CP's board, and is likely headed to a shareholder vote on 17 May 2012 at the company's annual general meeting.
 
Mr. Harrison has promised to reduce the company's operating ratio to 65 percent by 2015. Meanwhile the railway's board, who think Mr. Harrison's goal is unrealistic, has thrown its support behind Mr. Green and his plan to reach an operating ratio of 70 to 72 percent in 2014.
 
"However, in light of the clement weather this winter and the upcoming independent study, and in order to gather additional shareholder support, we believe the company could provide new targets for the 2015-16 timeframe," Mr. Poirier said in a note to clients Monday.
 
"Hence, we suggest investors wait before committing their votes in favour of Pershing," he added.
 
He added that he also expects several of CP's customers to publicly express their reticence about Mr. Harrison and/or their support for CP's improving operations in the months ahead.
 
At the same time, with a mild winter on the books, both of the country's largest railways have been able to make significant volumes gains year-over-year so far in the first quarter, said Steve Hansen, Raymond James analyst.
 
CN's originations are up 6.8 percent year-over-year so far during the quarter, while CP's have been up 7.2 percent, he said.
 
"This is particularly notable, in our view, given that CP's metrics have materially lagged CN over the past four quarters, perhaps indicating that CP is finally beginning to recoup the market share losses it suffered last year," he said in a note to clients. "That said, easy comps are clearly contributing as well, in our view."
 
The most glaring difference between CP and CN, however, remains the over-sized intermodal category where CN's year-over-year growth has been 11.4 percent, while CP's has only been 1.2 percent so far in the quarter.
 
"We do note, however, that the Intermodal category has finally turned positive at CP and that the gap between the two carriers seems to be (gradually) narrowing," he said. "While this could represent an important inflection point for CP, we will reserve judgment until the full quarter is complete."
 
Scott Deveau.