Ackman-Backed CEO Cuts Canadian Pacific Workforce by 23%
Canadian Pacific Railway Ltd. (CP) plans to cut about 23 percent of its workforce in four years as Chief Executive Officer Hunter Harrison, hired after a proxy fight by hedge-fund manager William Ackman, boosts profitability at the least efficient of North America’s large railroads.
The company plans to trim its workforce of 19,500 employees and contractors by 4,500 through 2016, using job cuts and attrition, the railroad said before Harrison outlined his strategy with investors in New York. The new CEO is also closing container-car terminals and re-evaluating assets from the 2007 acquisition of Dakota Minnesota & Eastern Railroad.
Ackman and Harrison have both said Canadian Pacific could cut its operating ratio -- a measure of expenses to revenue -- to about 65 percent in four years. Harrison reaffirmed the pledge when the company reported third-quarter earnings.
“We have initiated a rapid-change agenda and have made tremendous progress in my first 160 days, and we are only getting started,’” Harrison said in a statement today. The shares have climbed about 26 percent to C$93 since June 28, the day before Harrison’s appointment was announced.
Ackman backed Harrison for the job as he sought to boost investor returns at the 131-year-old company after his Pershing Square Capital Management LP became its largest shareholder in 2011.
About 1,700 of the job cuts will be completed by the end of this year, the Calgary-based company said.
The railroad will also explore options for its real estate holdings and relocate corporate headquarters to a new office in Ogden Yard by 2014, according to today’s statement.
Canadian Pacific is considering the sale of a midwestern U.S. line acquired with its purchase of DM&E, a second swipe at the 2007 deal criticized by Ackman.
Harrison is also reviewing other options for the line, which includes about 660 miles of track from Minnesota through South Dakota, Nebraska and Wyoming. Canadian Pacific said yesterday that it will delay indefinitely options included in the DM&E transaction to expand its rail network into the Powder River Basin, the largest U.S. coal reserve.
During the third quarter, Canadian Pacific closed four hump yards, used to separate and sort rail cars, and intermodal terminals in cities such as Chicago and Milwaukee to trim operating costs and set the stage for potential land sales, Harrison said in October.
“This is a key part of Hunter Harrison’s plan to improve efficiencies and is a logical move considering the increased number of bulk and intermodal trains that require little or no assembly in yards,” Cameron Doerksen, an analyst at National Bank Financial in Montreal, said in a Nov. 30 note to clients.
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