The proxy battle between Canadian National Railway Co. and a leading shareholder has heated up with TCI Fund Management Ltd. defending itself from what it calls “inaccurate and misleading information” about its efforts.
The British-based activist investor says its request for a special meeting of shareholders in March to push a slate of four new directors and seek a change in CEO is to hold CN’s board accountable.
“A new, high-quality board with extensive railroad experience and expertise will help ensure CN is put on the right track to the benefit of the Canadian and U.S. economies, shippers, employees and shareholders. CN can do better, and with a new board, it will,” Chris Hohn, TCI founder and managing partner, said in a news release.
TCI’s statement came days after CN fired back at TCI for its own allegedly “false and misleading claims.”
CN chief executive Jean-Jacques Ruest stated at the time that it would not “indulge unfounded and bad-faith arguments that serve the interests of one shareholder over others.”
Ruest added that the Montreal-based railway maintains an open and constructive dialogue with its shareholders, and is open to discussions about improvements, but that he wouldn’t serve the interests of CN’s competitors.
On Tuesday, TCI denied the railway’s claim that it is in a conflict of interest by being the largest shareholder of rival Canadian Pacific Railway Ltd. in addition to being the second-largest CN investor.
It said its CN investment is valued at US$4.3 billion, larger than its US$3.7-billion investment in CP and US$1.2-billion investment in Union Pacific.
Like many other CN shareholders, TCI said its ownership in both Canadian railways is due its belief in the long-term success and growth in the railroad industry.
TCI said it is not a “dissident shareholder” that only recently acquired its stake to assert effective control of the railway. It said it has owned CN shares since 2018 and is seeking to enhance the value for all shareholders by pushing for changes.
TCI has nominated four industry executives to the board: railway board member Gilbert Lamphere, former Credit Suisse analyst Alison Landry, former Union Pacific CFO Rob Knight and Paul Miller, a former CN vice-president.
“The quality of the board candidates is clear and indisputable. It is therefore notable that the board has said nothing negative about the nominees but has instead chosen to attack TCI in an attempt to divert attention from the excellence of the candidates.”
The investor has also proposed former CN chief operating officer Jim Vena as a replacement for Ruest.
TCI launched its efforts in response to CN’s US$33.6-billion takeover bid for Kansas City Southern.
It says CN’s claim that the bid was positive, with it netting a US$700-million break fee when KCS determined CP’s bid was superior, was “due solely to luck” that the U.S. railway regulator delayed its ruling that ultimately rejected its request for a voting trust.
“In fact, CN’s failed attempt to acquire KCS was reckless and exposed a basic misunderstanding of the railroad industry and regulatory environment,” TCI stated, noting that it could have been on the hook for $2 billion in termination fees.
It also says that CN’s operating and financial performance has lagged other large railroads, it directors have no meaningful railroad operational expertise, the railway has endured a brain drain and the board twice failed to appoint a world-class CEO.
Its share price has also underperformed the North American railroad sector.
“With a new board and world-class CEO, TCI is confident CN can get back on track and regain market share in the extremely attractive Canadian railway industry.”
This report by The Canadian Press was first published Oct. 5, 2021.
Companies in this story: (TSX:CNR, TSX:CP)
Ross Marowits, The Canadian Press