Ackman Rejects Canadian Pacific Deal Ruling Out CEO Pick

Pershing Square CEO William Ackman
William "Bill" Ackman, founder and chief executive officer of Pershing Square Capital Management LP, listens during a Canadian Pacific Railway Ltd. town hall meeting in Toronto on Feb. 6, 2012. Photographer: Norm Betts/Bloomberg

William Ackman, the investor waging a proxy fight to oust Canadian Pacific Railway Ltd.’s chief executive officer, ruled out a compromise that eliminates Hunter Harrison as a possible successor.

Ackman said his hedge fund, Pershing Square Capital Management LP, has heard from some railroad shareholders that Canadian Pacific’s board is willing to search for a replacement for CEO Fred Green, other than Harrison, and give Pershing four to five seats on the board. He said Canadian Pacific hasn’t approached him directly.

“The most important right that shareholders have is the right to choose which directors should represent their interests on the board,” said Ackman, who has proposed a slate of seven nominees to a 16-member board. “That right should be exercised by the shareholders themselves, not by the board.”

The railroad, Canada’s second-largest, needs management change after trailing North American peers on performance benchmarks since Green took the top job in 2006, Ackman has said.

“The company claims their settlement would reduce uncertainty,” he said in a telephone interview today. “In fact the opposite is true.”

Stock Performance

The Calgary-based railroad’s proposal would deny the board a clear mandate for change, and “by eliminating the best potential candidate from consideration, the future management of the company will also be extremely uncertain,” said Ackman, who proposed Harrison as a replacement for Green. Harrison is the former CEO of competitor Canadian National Railway Co.

Canadian Pacific advanced 0.2 percent to $78.46 at the close of New York trading. The shares have risen 27 percent from Oct. 27, the day before New York-based Pershing Square disclosed a stake that now amounts to 14 percent.

Many shareholders have told the railroad they prefer a compromise before the May 17 annual meeting, where directors will be chosen, Ed Greenberg, a Canadian Pacific spokesman, said today.

“Mr. Ackman’s recent public statements indicate he is opposed to a compromise,” Greenberg said. “If that changes, we would be pleased to have discussions towards a constructive resolution that would be in the best interests of CP and all its shareholders.”

Ackman said Board Chairman John Cleghorn hasn’t contacted him since breaking off talks in January.

‘They Should Call’

“Pershing Square has always been and remains committed to committed to advancing the best interests of the company and its shareholders,” Ackman said in a statement. “If Mr. Cleghorn or other directors have ideas they wish to discuss with us consistent with that objective, they should call me.” The activist investor’s campaign has won increased support from investors during the past two months, an April survey from Toronto-based research company Brendan Wood International indicates.

About 94 percent of shareholders polled want change at the railroad, and 75 percent favor Ackman’s proposal to replace Green with Harrison, Brendan Wood said last week. That’s up from 86 and 72 percent, respectively, in February.

Canadian Pacific reiterated in a letter to shareholders today that its existing management has a strategy in place to improve performance benchmarks such as the operating ratio, which compares expenses to revenue.

That plan is already delivering results, Cleghorn said in the letter, citing first-quarter earnings that topped analysts’ estimates.

The board “unanimously believes that Pershing Square’s demand that CP replace the company’s CEO with Mr. Harrison would delay and damage CP’s value-generating plan, and put our progress and momentum at risk,” Cleghorn wrote.

Green has pledged to lower the operating ratio to 68.5 percent to 70.5 percent in 2016 from 80.1 percent in the first quarter. Harrison is targeting a ratio of 65 percent in 2015, which the railroad has said is unrealistic.

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