Canadian National Asks Ex-CEO to Reconsider Seeking Job at Rival Railroad

Canadian Pacific Railway Ltd.’s (CP) largest shareholder, William Ackman, said his choice for chief executive officer wouldn’t be hindered from taking the job by agreements with the competing railroad he previously led.

Hunter Harrison’s former employer, Montreal-based Canadian National Railway Co., said today it asked him to “reconsider” his interest in the Canadian Pacific position and put Ackman “on notice to cease any efforts to induce breaches of Mr. Harrison’s contractual obligations.”

Ackman said in a telephone interview that the law firms Davies Ward Phillips & Vineberg, in Toronto; Kirkland & Ellis, in Chicago; and Sullivan & Cromwell, in New York, reviewed Canadian National’s claims. Harrison’s contract was based in Illinois, and law firms from that state, New York and Canada were used to ensure thorough analysis, Ackman said.

“Our lawyers have said that CN’s claims here are ‘absolutely frivolous,’” he said.

“We’ve not attempted in any way to induce him to breach his obligations,” Ackman said. “Hunter has a confidentiality agreement with Canadian National (CNR) that prevents him from disclosing confidential information, and he has not done so, nor have we asked him to.”

Mark Hallman, a Canadian National spokesman, declined to comment beyond the company’s statement. Harrison didn’t immediately respond to a voicemail and e-mail seeking comment.

Agreement Terms

Harrison’s non-compete agreement with Canadian National, which lasted for two years after his retirement, expired on Dec. 31. Canadian National, the nation’s largest railroad, said a separate condition attached to retirement and pension arrangements required Harrison not to compete with the company for five years through December 2014.

“It’s amazing to me that a company of Canadian National’s track record would stoop so low and feel so threatened by someone of Hunter’s talents joining another railroad,” Ackman said. “I think it’s embarrassing for CN.”

Canadian Pacific rose 1 percent to C$70.77 at the close in Toronto, its highest since May 2008. Canadian National declined 1.3 percent to C$78.25.

Ackman, the founder of New York-based Pershing Square Capital Management LP, invests in companies he deems undervalued and seeks changes to improve shareholder returns. He disclosed his stake in Calgary-based Canadian Pacific in late October and has put naming Harrison as CEO at the center of his turnaround plan for the railroad.

‘Long Term’

Harrison said earlier this week that he is ready “to be in there for the long term,” at Canadian Pacific, the country’s second-biggest railroad, and that a tenure of three to five years “is reasonable.”

Canadian Pacific Chairman John Cleghorn rebuffed Ackman’s push to replace Green with Harrison in a letter released Jan. 9. Ackman told Bloomberg News that day he would seek a proxy fight and that Harrison would be CEO “once we are successful.”

Harrison more than tripled net income during seven years running Canadian National, using an approach known as precision railroading, before retiring in 2009.

He declined to say in an interview this week how long it might take for Canadian Pacific boost earnings, pointing to his tenure at Canadian National and Illinois Central Corp., which Canadian National bought in 1998.

When Harrison retired from Canadian National, the operating ratio, a measure of efficiency, had been cut to 67.3 from 76 at the end of 2002, filings show. Canadian Pacific’s ratio was 75.8 in 2011’s third quarter, and 77.6 for all of 2010, according to Bloomberg Industries data.

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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