Canadian Pacific Plans Track Upgrades as Ackman Stake Grows

Canadian Pacific Railway Ltd. is planning track upgrades and expanding its board as activist investor William Ackman urges changes in management and operations after becoming the railroad’s largest shareholder.

The new directors, both operations executives with about 40 years of experience each in railroads, may have been sought by Ackman’s Pershing Square Capital Management LP, said Jason Seidl, an analyst with Dahlman Rose & Co. Pershing, which holds 14 percent of Canadian Pacific, described talks on changes at the company as “productive” in a regulatory filing this month.

Pershing “intimated it was going well, and then we get two brand new board nominations,” Seidl, who’s based in New York, said in a telephone interview. “Both guys happen to be operating guys and both very respected in the rail industry. I can’t help but wonder if Pershing didn’t have a direct influence in that or an indirect influence.”

Canadian Pacific appointed Edmond Harris, the Calgary-based company’s former chief operating officer, and Tony Ingram, previously the operations chief at CSX Corp., as directors last week. Since Dec. 1, about a month after Pershing Square disclosed its Canadian Pacific stake, the railroad has announced changes including a track-rights agreement and new locomotives.

Ackman, 45, invests in companies he deems undervalued and then urges changes to increase returns. New York-based Pershing announced Oct. 28 that it held a 12.2 percent stake in the railroad and planned to hold talks with management, the board and other holders on topics including operations, capitalization, financial condition, management and governance. Pershing later boosted its stake.

Operations Upgrades

Ed Greenberg, a Canadian Pacific spokesman, declined to comment on whether Pershing had a role in the board expansion or other changes. Pershing didn’t return a call seeking comment.

Canadian Pacific’s operational upgrades include the addition of short stretches of track in parts of its network and an investment of more than C$90 million ($87 million) to handle more shipments of crude oil from the Bakken formation in Saskatchewan and North Dakota.

The expansion of the railroad’s board takes membership to 15 from 13. Ingram was senior vice president of transportation network at Norfolk Southern Corp., the second-biggest U.S. eastern railroad, before joining CSX, its larger rival, in 2004. He retired from CSX in 2009.

“Operating an east-coast rail is very challenging because it’s more hub-and-spoke and shorter length of haul, so that is something that Tony Ingram brings to the table,” said Lee Klaskow, a Skillman, New Jersey-based analyst with Bloomberg Industries.


Harris worked at Canadian Pacific for about a year through March 2011. He had previously worked at Montreal-based Canadian National Railway Co., where he was executive vice president of operations. When announcing his retirement, Canadian Pacific said Harris would act as an adviser to his replacement, Michael Franczak.

Harris and Ingram “are extremely well-respected. They are old-fashioned railroaders who took companies and made them best-in-class” in terms of operations, Klaskow said by telephone. “It’s a great thing for CP because at the end of the day, a lot of investors’ concerns with CP have been their operating performance.”

Canadian Pacific’s net income declined every quarter this year amid extreme snow and rain that forced the company to reroute shipments and raise fuel spending.

Shares of the company, which has the highest operating expenses versus sales among large North American railroads, fell 31 percent from the end of last year through Sept. 22, the day before Pershing began buying shares. In the same period, an index of the three biggest publicly-traded U.S. railroads dropped 9.9 percent and competitor Canadian National Railway Co. declined 3.8 percent.

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