Bloomberg News

Ackman Rebuffed as Canadian Pacific Says CEO Green Will Stay

January 09, 2012

(Updates with director’s comment in seventh paragraph.)

Jan. 9 (Bloomberg) -- Canadian Pacific Railway Ltd. directors rejected a call by William Ackman’s Pershing Square Capital Management LP, the carrier’s biggest shareholder, to oust Chief Executive Officer Fred Green.

The board “carefully considered” and unanimously turned down Ackman’s proposal to hire retired Canadian National Railway Co. CEO Hunter Harrison, 67, to lead a turnaround in operating performance, Chairman John Cleghorn said in a letter to shareholders today.

“Pershing Square’s repeatedly stated agenda of management change would be detrimental to the company and its shareholders,” Cleghorn said. Ackman, who holds a 14 percent stake in the railroad, invests in companies he deems undervalued and pushes changes he says will improve shareholder returns.

Cleghorn’s letter sharpened the carrier’s position in its tug of war with Ackman. Last week, the chairman wrote Ackman to dispute news media accounts that the board was interested in Harrison and described the railroad’s management as “strong” without mentioning Green, 55, by name.

Ackman, 45, responded by saying that after he recommended the CEO switch on Nov. 2, Canadian Pacific’s board sought a meeting with Harrison.

Cleghorn wrote today that Pershing lacked a “credible, detailed plan” for improving Canadian Pacific’s operating ratio, a measure of operating expenses over sales, to 65 by 2015 from 78 in 2010.

Structural Differences

Harrison doesn’t have a detailed plan either and would only begin to develop one “over a number of months,” while the Calgary-based company’s current proposal for improving its operating ratio is already well under way, he wrote.

No railroad has ever posted the pace of improvement Ackman suggested from a starting ratio of 78, and the New York-based hedge fund failed “to take into account the structural differences that exist between CP and its peers,” Cleghorn said.

Pershing Square didn’t immediately respond to a request for comment today.

Canadian Pacific climbed 0.5 percent to $67.55 at 10:44 a.m. in New York trading. Before today, the shares had risen 8.6 percent through Jan. 6 from Oct. 27, the day before Ackman disclosed his initial stake.

Edmond Harris, who was appointed as a Canadian Pacific director last month, has told the board that the railroad has to “contend with greater geographic challenges,” than Montreal- based Canadian National, its larger competitor, Cleghorn said in the letter.

Harris, who has worked with operations for both companies, said Canadian National was “built by Canadian taxpayers” and has greater flexibility because it owns significantly more track. Canadian National was owned by the country’s government until 1995.

Board Seat

Cleghorn reiterated in today’s letter Canadian Pacific’s offer of a board seat for Ackman. Ackman said last week that he declined the seat because the terms required him to vote Pershing’s shares in favor of each of the board’s nominees and support directors’ recommendations on other matters.

Ackman requested two Canadian Pacific board seats, one for Harrison and the other for a candidate he didn’t identify.

--Editors: James Langford, Ed Dufner

To contact the reporter on this story: Natalie Doss in New York at ndoss@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net


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