Feb. 10 (Bloomberg) -- Canadian National Railway Co.’s board canceled future pension payments for a former executive recruited by activist investor William Ackman to replace the head of a rival carrier.
Hunter Harrison’s statements at an investor meeting held by Ackman’s Pershing Square Capital Management LP indicate that he broke a non-compete agreement with his former employer, Mark Hallman, a Canadian National spokesman, said in an e-mailed statement on the move. Ackman plans a proxy fight to replace Canadian Pacific Railway Ltd. CEO Fred Green with Harrison.
Canadian National, which previously sued Harrison in federal court in Chicago and sought confirmation of its right to suspend pension payments, filed a revised complaint today in which it seeks approval of the railway’s right to cancel them altogether and recover $3 million in previous payments.
The company is also canceling restricted stock units and other benefits that have yet to be paid to Harrison.
Installing Harrison at Canadian Pacific is the centerpiece of Ackman’s turnaround plan for the carrier. Ackman, who invests in companies he deems undervalued and pushes changes to improve returns, disclosed a stake in October that made him Canadian Pacific’s largest investor.
Pershing Square now controls 14.2 percent of the company and has previously said it would indemnify Harrison against any losses from Canadian National’s suit.
Harrison’s public statements indicate that be broke a two-year non-compete with the railroad sometime in 2011, Canadian National said in the revised complaint. He would be “in unquestionable breach” of his agreements with Canadian National if he took a position at Canadian Pacific and would inevitably disclose confidential information, the company claimed.
Canadian National said it will “consider appropriate relief” if Harrison is offered and accepts the CEO job at the rival rail. To receive his payments, Harrison must confirm that he never broke his agreements with Canadian National and reject Ackman’s push to take the top job at Canadian Pacific, the company said.
Pershing and Harrison couldn’t immediately be reached for comment.
While Harrison may have some confidential information from his time at Canadian National, “the more time that goes by since he was at CN -- he’s now been gone for two years -- the less I think that information becomes relevant,” Ackman said.
Canadian National cited Harrison’s purchase of $5 million of Canadian Pacific stock as evidence of his breaking agreements. The company also said his statement that he would put the right team in place at Canadian Pacific indicates that he could look to his former employer to find executives, which would violate a non-solicitation agreement.
The case is Canadian National Railway Co. v. Harrison, 12-00493, U.S. District Court, Northern District of Illinois (Chicago).
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