Pershing Square fund manager Bill Ackman has been waging a war against Canadian Pacific (CP) since just after the new year when CP Rail Chairman John Cleghorn filed a public letter with the SEC that accused Ackman of leaking information to the media about replacing current CP Rail CEO Fred Green with Hunter Harrison, the former CEO of CO rival Canadian National (CNI). That was on January 3. Ackman, who owns roughly 14% of CP Rail, wrote back immediately saying that has a plan that would improve CP Rai’s performance “and that plan begins with a new leader.”
From there, it was back-and-forth. Cleghorn responded, expressing his and the rest of the CP Rail board’s support for Green. Ackman explained his view, alleging that it is Green’s poor job as CEO that has enabled CP Rail to lag behind its peers in terms of performance. The fund manager continued by saying that he thinks Harrison could help turn things around at CP Rail, just as he did at CNI. “We have a legendary C.E.O. with an incredible track record,” said Ackman. “Who better to bring an underperforming competitor up to snuff?”
Bill Ackman has been met with such resistance in this matter that threatened a proxy fight and listed several demands – one of which was that he be given a seat on the board. In a letter dated March 22, 2012, CP Rail wrote that, “The invitation to Mr. Ackman remains open and, in that regard, Canadian Pacific has included him as one of the nominee directors that we recommend to Canadian Pacific shareholders.” Ackman refused the singular seat, saying that the agreement would , under those terms, “handcuff” him from making the changes he seeks. The letter continues by saying that “Pershing Square’s nominees who accompany Mr. Ackman have no evident railroad industry experience and add no other complementary industry experience.”
The letter spoke out specifically against Harrison, saying: “The Board strongly disagrees with Pershing Square’s demand that Canadian Pacific replace its CEO with Hunter Harrison. The Board believes that Mr. Harrison is not the right leader for Canadian Pacific. Furthermore, Pershing Square has presented no credible, detailed plan to support its assertions about reducing Canadian Pacific’s operating ratio. The approach advocated by Pershing Square and its nominees, none of whom has any operational or related experience with Class I railroads, risks moving Canadian Pacific in the wrong direction by seriously delaying and disrupting our progress in executing the Multi-Year Plan, thereby negatively impacting shareholder value.”
However, the board was not specific with its reasoning as to why Harrison would not be a good candidate for the role.
At this point, we think that a proxy fight is on the horizon – but that could be a good thing. There is a lot of people out there that agree with Ackman – so much so that JP Morgan actually upgraded its opinion on the company from neutral to underweight on expectations that Harrison will become CEO.
