William Ackman, the hedge-fund manager pressing Canadian Pacific Railway Ltd. (CP) for a leadership change, said the carrier is losing market share to rivals under current Chief Executive Officer Fred Green.
Over the past six years, Canadian Pacific intermodal share decreased by 7.4 percentage points even after completing an acquisition, Ackman’s Pershing Square Capital Management LP said today in a regulatory filing.
“Poor management leads to poor service and market-share losses,” said Ackman, whose New York-based hedge fund is the railroad’s largest investor. Because of unreliable transit times and other service issues, “Canadian Pacific has lost market share to Canadian National over the last six years.”
Pershing Square reiterated its position after Canadian Pacific said this week that claims of decreased share under Green were incorrect. The railroad has argued Pershing’s proxy fight to replace the 55-year-old Green with former Canadian National Railway Co. (CNR) CEO Hunter Harrison might backfire, driving away customers who disliked the tactics Harrison used to boost profitability at the larger railroad.
The proposed CEO change “would undermine CP’s ongoing initiatives to increase volume and improve operations and profitability,” Canadian Pacific Chairman John Cleghorn said in a statement today. “A number of CP customers have expressed concerns about the risk and disruption that would occur should Hunter Harrison be installed as CEO of CP.”
‘Take Customers Away’
Brian Yarbrough, a St. Louis-based analyst with Edward Jones & Co., expressed skepticism about Canadian Pacific’s statements that putting Harrison in the top job might cost market share.
“How come when Hunter was running Canadian National rail, how come CP didn’t gain a bunch of market share and take all these customers away from Canadian National?” he asked.
Canadian Pacific reiterated that its improvement strategy is producing results. The rail carrier previously said its domestic intermodal volumes have risen this year and that it has regained shipping lines lost earlier. Inclement weather prompted a decline in container-shipping share at the company in the winter of 2010-2011.
Canadian Pacific shares dropped 0.5 percent to C$75 at the close in Toronto as broader indexes fell. They have advanced 22 percent from Oct. 27, the day before Pershing disclosed its stake.
Ackman, 45, says Harrison would be able to cut Canadian Pacific’s operating ratio to 65 percent in 2015, while current management targets 68.5 percent to 70.5 percent in 2016. Operating ratio is a profitability gauge that compares expenses to sales.
Harrison, 67, “improved service dramatically” while leading Illinois Central Corp. and Canadian National, Ackman said, urging investors to support his fund’s seven board nominees. “Those improvements drove customers and market share to his railroads.”
The hedge-fund founder said shareholders should vote against Canadian Pacific’s resolution on executive compensation, which was detailed in the company’s proxy filing last month, and criticized the board for what he said were overpayments to Green even as the rail carrier’s performance deteriorated.
Pershing also blamed Green and the current board for a “mismanagement of executive ranks.” The company has undergone five changes in chief operating officers and three in chief financial officers in less than six years, Pershing said in today’s filing.
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