Canadian Pacific Boosts Dividend Amid Ackman Proxy Battle
Canadian Pacific Railway Ltd. (CP) increased its dividend by the most in at least 10 years as hedge-fund investor William Ackman wages a proxy battle to bring in a new chief executive officer.
The payout will rise to 35 Canadian cents a share from 30 Canadian cents, payable on July 30 to holders of record June 22, the Calgary-based company said today in a statement. The 5-cent increase is the largest since February 2002 and compares with a 3.25-cent boost forecast by Bloomberg.
Ackman, whose Pershing Square Capital Management LP is the railroad’s biggest shareholder, says investors have lost 18 percent during CEO Fred Green’s tenure because of overspending and declines in market share. The dividend boost capped a day in which Ackman renewed his criticism of the company and Canadian Pacific denounced some of his comments as “outrageous.”
The railroad’s plan for boosting profit “is clearly delivering record operating and service metrics,” Chief Financial Officer Kathryn McQuade said in the statement announcing the dividend increase.
Canadian Pacific is resisting Ackman’s push to replace Green with former Canadian National Railway Co. (CNR) CEO Hunter Harrison. While Canadian Pacific says a change would disrupt a strategy that’s already in place, Ackman says Harrison would be able to produce gains in the operating ratio, a benchmark measure of profit, as he did at Canadian National.
The shares fell 2.9 percent, the most since March 6, to C$74.21 at the close in Toronto as Canadian stocks slumped. That pared the gain for the year to 7.5 percent.
Role of Bonuses?
Ackman said today that the company improved its first- quarter margin by not setting aside money for bonuses.
“You accrue for bonuses, you set aside money to pay bonuses, if you expect they’re going to be paid,” Ackman told Canada’s Business News Network. “So effectively, by not accruing for bonuses, they made the operating ratio look about 100 basis points better.’
Canadian Pacific’s operating ratio, a gauge that compares expenses to revenue, improved to 80.1 percent of sales from 90.6 in the first quarter of 2011, when severe winter weather boosted costs.
The first-quarter performance shouldn’t be confused with successful execution because it compares a period of mild weather in 2012 to one with much worse conditions, Ackman said earlier today in a letter to the railroad’s investors.
‘‘If things have really turned, why aren’t they paying bonuses to their team?” Ackman wrote. “The answer is, to make the quarter look better, in my opinion.”
Ackman, whose Pershing Square holds about 14 percent of Canadian Pacific’s stock, is asking investors to support board nominees who would work to oust Green as CEO.
Canadian Pacific responded that Ackman was wrong in his “comments about incentive compensation accruals.”
Those accruals were “higher by $4 million when compared to first quarter 2011,” the railroad said in a statement. “All accruals have been properly made and recorded in full compliance” with U.S. generally accepted accounting principles.
“It is outrageous for Mr. Ackman to make the accusations he did today on the Business News Network,” Dick Kelly, chairman of the audit committee of the railroad’s board, said in the statement. “To put the Company’s performance in a negative light, Mr. Ackman suggested that management deliberately distorted CP’s financial results. He attacks the competence of our audit committee, which approved our first-quarter results.”
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