New York hedge fund Pershing Square Capital Management LP is seeking to install Hunter Harrison, former CEO rival Canadian National, as chief executive of Canadian Pacific - Date unknown Darren Calabrese.

13 March 2012

CP Rail Shakeup Could Precede Shareholder Meeting

Calgary Alberta - Two directors at Canadian Pacific Railway Ltd. acknowledged for the first time Tuesday the company's board could consider a management shake-up ahead of the railway's annual general meeting in May if the proposed plan by activist shareholder Bill Ackman gains enough traction with shareholders.
 
But both Ed Harris and Tony Ingram said Tuesday they remain fully committed to CP's current course and its chief executive, Fred Green. Still, the two didn't rule out a possible change ahead of the scheduled shareholder vote.
 
"I can't speak for the whole board. There are just two of us here today," Mr. Ingram said in an interview with the Financial Post. "But I don't think this board that I'm serving on here will opt to just shut the door to anything that comes up. They will look at any request and consider it, I'm sure."
 
It is perhaps the first indication that the current proxy battle at CP might not make it all the way to the 17 May 2012 AGM.
 
Mr. Ackman's New York hedge fund, Pershing Square Capital Management LP, has been seeking to install Hunter Harrison, the former chief executive of rival Canadian National Railway Co., as chief executive of CP after years of chronic under performance under the guidance of Mr. Green.
 
The plan appears to be resonating. Tom Wadewitz, JP Morgan analyst, said his current price target of $92 a share is based in part on what he sees as a 90% probability that Mr. Harrison will be installed as CEO.
 
Neither Mr. Harris or Mr. Ingram, who are railway veterans themselves, would say whether they would consider remaining on CP's board in the event of a management shake-up.
 
"First of all, we're not planning on losing," Mr. Ingram said. "We're in this to win."
 
But Mr. Harris acknowledged that he had approached Mr. Ackman to offer his services as "a consultant" last fall when Pershing Square first announced its position in CP.
 
A source close to Pershing Square said Mr. Harris also offered his services in the proposal for management change, including as a director, once his consultancy contract at CP expired at the end of 2011. Instead, Mr. Harris and Mr. Ingram were appointed to CP's board at the end of December.
 
Both have since been tasked with defending Mr. Green and his plan to improve CP's operating ratio, an important gauge of its profitability measuring its operating costs as a percentage of revenue, to between 70% and 72% by the end of 2014 to shareholders.
 
Unless CP's board entirely relents to Pershing Square's demands, the fight will likely go to a shareholder vote to clearly demonstrate the level of support for the plan, the source close to Pershing said.
 
Mr. Harrison has set his own target of achieving an operating ratio of 65% by 2015, which CP's board has called unrealistic.
 
"I fell out of the chair when I heard that," said Mr. Harris, who worked alongside Mr. Harrison at CN and at Illinois Central before that. He said Mr. Harrison has no clear strategy for achieving that goal, and has never stepped foot on CP's property to understand the geographical and structural challenges he would face in reaching it.
 
Mr. Harrison told the Financial Post in January he would be happy to provide a more detailed plan to the board. But has yet to hear from anyone at CP.
 
"We considered that as a board," Mr. Ingram said. "You can't support your CEO and go out interviewing people for his job. That's not good management. We were fully convinced that the right person has now got the right plan in place."
 
While no one can argue with Mr. Harrison's reputation as an operator, Mr. Harris said he also comes with "a bit of baggage" including an ongoing legal battle with CN over his retirement benefits after he was announced as potential candidate for the CEO position at its rival.
 
"Hunter left Canada maybe not with the best relations with regulators as well as the elected politicians and certainly some of the customers," Mr. Harris said.
 
He noted Claude Mongeau, CN's current CEO, has spent the last two years trying to improve some of those frayed relationships.
 
"The board has to take all of those things into consideration," Mr. Harris said.
 
Mr. Harrison defended his legacy Tuesday in an interview with BNN.
 
"I would suggest this to you, relationships don't make business. So, maybe I'm a little harsh. Maybe, I have a little baggage," he said. "Everywhere I've ever been at, we've gained market share and been able to increase price. And I think that's the important thing, and that's driven on the product you have."
 
"Not the relationships, the product."
 
Scott Deveau.