A Canadian Pacific coal train - Date/Photographer unknown Canadian Pacific Railway.

19 April 2012

CP Rail Shareholders Favour Pershing Some Unsure

New York New York USA - A month before a showdown over who should run Canada's second biggest railroad, more than half of the shareholders in a Reuters survey favor a dissident shareholder's slate of candidates over Canadian Pacific Railway Ltd's existing board.
 
Several respondents said that even the strong first-quarter results that CP Rail expects to report on Friday won't persuade them to stick with CP's incumbent directors and Chief Executive Fred Green.
 
And they said Hunter Harrison, the well-known former CEO of Canadian National Railway, who is dissident shareholder Pershing Square Capital Management's pick to head CP, has more of what it takes to transform North America's worst-in-class railway into a potent operator than does Green.
 
"A relentless pursuit of efficiency and improvement is seemingly lacking in the current operation. Sometimes it just comes down to drive and execution, which I think Hunter has," said Jim Huang, president and portfolio manager at Toronto-based T.I.P. Wealth Manager Inc., which owns a small number of CP shares.
 
New York-based hedge fund Pershing is CP's biggest shareholder. It is pushing hard to shake up the company, starting with installing Harrison at the top, and has put forward a slate of seven new director nominees to be voted on by shareholders at the railroad's annual meeting in Calgary on 17 May 2012.
 
In the Reuters survey, conducted between 11 and 17 Apr 2012, five shareholders, including three large holders, said they would back Pershing. One shareholder said his firm would support CP, and three were undecided. Reuters attempted to survey more than 50 shareholders and nine responded.
 
Those who said that they are in the Pershing camp account for about 5 percent of CP's shares. If Pershing's own 14.1 percent stake is added, then almost one-fifth of the railroad's shareholders seem sure to back the fund's plan for change.
 
Last month, a poll by consulting firm Brendan Wood International of about a third of CP shareholders found that 91 percent of them want a management change.
 
Backing CP in the Reuters survey was Toronto-based fund manager Morgan Meighen & Associates Ltd, which owns about 150,000 CP shares.
 
"Our basic central approach as fund managers is to go with management unless we see something fraudulent or criminal. If there are improvements to be made, there are other ways to do it," said Michael Smedley, executive vice-president and CEO of Morgan Meighen.
 
CP's slate consists of 15 existing directors plus William Ackman, the CEO of Pershing, to whom the railroad has offered a board seat.
 
Senior executives at several funds and banks told Reuters that both sides have been lobbying shareholders vigorously.
 
The election of Pershing nominees to CP's board would not automatically mean Harrison will become CEO. However strong support for Pershing's minority slate will send a clear message to the board that shareholders want change, and installing Harrison as CEO has been Pershing's central demand.
 
BUMPER RESULTS NOT ENOUGH
 
The railroad said last week it expects to report a four-fold jump in first-quarter earnings, helped by record operating results.
 
Several shareholders said they were not overly impressed.
 
"The current management team has had a long enough time to show whatever they can do and it has obviously not come to fruition until this last quarter," said a large shareholder who requested anonymity because his firm does not discuss investment decisions with the media.
 
The flashpoint in the fight has been CP's operating ratio, which measures efficiency by tallying how much revenue is required to maintain operations. The higher the ratio, the less efficient the operation.
 
At 81.3 percent, CP has the weakest operating ratio of North America's big railroads. By comparison, Canadian National Railway, where Harrison was CEO from 2003 until 2009, had a ratio of 63.5 percent last year.
 
Pershing Square and Harrison have said they can improve the ratio to 65 percent within four years. CP says it can get to 70 to 72 percent by 2014 and to 68.5 to 70.5 percent by 2016.
 
"I don't believe the Ackman/Hunter Harrison target, at least not by 2015. And the target set by CP is more achievable, but the question is:  is the right team to achieve it running CP?," said another shareholder whose firm's policy is not to comment to media.
 
Nicole Mordant and Susan Taylor.
 
Editor's Note:  This editor is a CP shareholder. Several weeks ago the CP WHITE proxy form duly showed up in the mail. Yesterday their amended WHITE proxy form arrived by mail. Where's Ackman's BLUE proxy form he promised to distribute? I haven't received it, has anyone?