2 May 2012

Ackman Absolutely Willing to Look at Other Choices for CP Chief

New York New York USA - Bill Ackman is rejecting a compromise offer from Canadian Pacific Railway Ltd., but opened the door to the possibility that another candidate besides his favoured choice Hunter Harrison could be chosen to lead the railway.
 
"We are absolutely willing to consider other candidates," he said in an interview.
 
Brushing off an overture from CP to negotiate a settlement ahead of a looming proxy battle, Mr. Ackman said he plans to take his mandate for leadership change at the railway to a planned shareholder vote on 17 May 2012.
 
"It is very important that shareholders have the right to vote for the directors they want," he said.
 
Mr. Ackman's New York hedge Pershing Square Capital Management is seeking shareholder support to elect an alternative slate of seven directors to CP's 16-person board. He said he has not been contacted by CP directly about negotiating a peace accord.
 
"Mr. Cleghorn has not reached out since early January when he broke off discussions with us. Pershing Square has always been and remains committed to advancing the best interests of the Company and its shareholders. If Mr. Cleghorn or other directors have ideas they wish to discuss with us consistent with that objective, they should call me."
 
According to Globe and Mail interviews with some of CP's major shareholders, Pershing Square appears to have sufficient support to elect, at a minimum, a majority of his proposed slate. Once the new board is elected, Mr. Ackman said in a telephone interview that he expects the board to initiate a search for a new candidate to replace current chief executive officer Fred Green.
 
Mr. Ackman said that Pershing believes Mr. Harrison is the best choice for CP, but "if we meet another candidate that is better than Hunter through the selection process, we will support that candidate."
 
Responding to mounting pressure from some of its largest shareholders, CP recently agreed to enter settlement talks to head off a potentially humbling proxy vote that could send some of the railway's blue chip directors packing. Sources said CP is offering to give Pershing Square four seats on its board, provided it drop its demand that Mr. Harrison take the helm at the under performing railway.
 
Sources close to CP said its board adamantly opposes Mr. Harrison as a new CEO, despite his long record of success transforming Canadian National Railway Co. and before that Illinois Central into industry leaders. These sources said the board is concerned that Mr. Harrison's brusque and aggressive style could potentially alienate some of CP's long-term customers who insist on high levels of service.
 
In a letter to shareholders Wednesday morning, CP chairman John Cleghorn warned that Mr. Harrison is planning "drastic" and "unrealistic" cuts that would eliminate nearly $700-million of costs by 2015, the equivalent of 45 percent of the railway's workforce.
 
Some of CP's largest shareholders have privately advised the company that they would prefer to see a settlement rather than risk the uncertainty of a rare proxy vote process that will ask shareholders to vote for 16 directors from a single, so-called universal ballot. The unusual ballot combines the railway's existing directors with Mr. Ackman's proposed replacements. Such a boardroom beauty contest is almost unprecedented and, as one person close to CP said, "would be an exercise in uncertainty."
 
CP spokesman Ed Greenberg said the railway has heard that many investors would prefer to see a compromise. "Mr. Ackman's recent public statements indicate he is opposed to a compromise. If that changes, we would be pleased to have discussions towards a constructive resolution that would be in the best interests of CP and all its shareholders."
 
If CP's peace overture fails, the company will be forced to forge ahead with the rare universal voting ballot that corporate governance experts said has only been used a handful of times for a limited pool of shareholders in previous U.S. proxy battles.
 
Typically, opposing sides in proxy battles propose competing slates of directors rather than listing all nominees on one ballot. Activists have been pushing universal ballots for years to hold individual directors more accountable for their decisions. Such a vote could potentially be a humbling defeat for a number of CP's establishment directors.
 
An executive with another major CP shareholder said that although he is concerned that Pershing Square's rosy profit projections may not be obtainable, his fund will likely vote for some of the activist's nominees because "it is time to sweep some cobwebs off the board."
 
The final two weeks of the CP proxy battle will depend on how much both sides are willing to bend. Mr. Ackman has publicly stated a number of times that he expects all of his seven nominees to be elected.
 
Backing his boast is a robust 66 percent climb in CP's stock price since the activist first acquired last September what is now a 14.2 percent stake in the railway.
 
The lofty stock price puts added pressure on shareholders to support Mr. Ackman's slate, because a defeat will likely deflate CP's stock price.
 
Jacquie McNish and Brent Jang.