MONTREAL — Canadian National Railway Co. (TSX:CNR) is cancelling almost $40 million in future pension and other benefit payments to retired CEO Hunter Harrison, who has said he wants to take the top job at rival Canadian Pacific Railway Ltd.
The Montreal-based railway said it outlined to Harrison what it expected of him to keep payments of his pension and other benefits.
“All Harrison had to do to get those payments was to provide discovery to confirm that he has not already breached his agreements and renounce his intention to breach in the future by accepting employment at or other involvement with CP,” CN said in a statement.
“Harrison, by ignoring CN’s warnings and engaging in affirmative efforts to become the CEO of CP, has breached his agreements with CN and has thereby forfeited his rights to his pension, restricted stock unit and other benefits.”
CN (TSX:CNR) said Harrison’s restricted stock units are calculated to be worth more than $17.8 million and the value of his pension is approximately $20.6 million.
“By virtue of his participation in and public statements at an investor meeting held by Pershing Square Capital Management LP. in Toronto on Feb. 6, 2012, and his actions and conduct leading to and association with that meeting, CN believe that Mr. Harrison breached his non-compete and other employment obligations to the company.”
CN said it has filed an amended court filing to obtain a declaration confirming its right to cancel Harrison’s pension and other benefits.
Last month, CN suspended pension and other payments to Harrison in response to overtures involving Canadian Pacific (TSX:CP).
Edward Jones analyst Brian Yarbrough said activist shareholder Bill Ackman has already said he’ll cover the amount Harrison loses in pension and benefits from CN if he becomes Canadian Pacific’s chief executive.
“For Hunter, he’s in a win-win situation,” Yarbrough said from St. Louis.
“He’s not going to lose here. It’s not going to be any punishment to him. Ackman said, ‘I will pay it to you.’ I will back you.”
Ackman is head of the U.S.-based Pershing Square activist fund which holds a 14 per cent stake in Canadian Pacific (TSX:CP) and is pushing for the ouster of current CEO Fred Green to increase its efficiency and shareholder value.
Yarbrough said Green’s track record isn’t good and he hasn’t been able to lower CP’s operating ratio, a measure of how much of the railway’s revenue is required to pay for its operating activities.
He said it’s his understanding that non-compete clauses typically don’t hold up in court.
“Ackman has said he has had several different lawyers read all the contracts and he doesn’t think CN has a case.”
Yarbrough said Harrison waited two years as part of his non-compete clause before looking to head up Canadian Pacific.
Harrison probably doesn’t have current pricing information or other “secrets” related to Canadian National because he retired more than two years ago, Yarbrough said.
The 67-year-old Harrison stepped down as CN’s chief executive in 2009. Harrison has said CP shareholders of should give him a chance to come out of retirement and overhaul the struggling railway.
Ackman hosted a meeting on Monday in Toronto for hundreds of CP shareholders where he outlined why and how to vote to turn over the CEO role from Green to Harrison and appoint five new directors to its board when the company holds its general meeting in May.
Harrison, who made a $5-million investment in CP last week, told the meeting that creating a more efficient railroad operation means more than just change in the management ranks, which appear to be confused as to “what they really want to do and accomplish.”
He has said he will focus on cost-cutting, downsizing and taking care of fewer assets as another way to bring down the company’s operating ratio, a statistic that has been at the heart of criticism over CP’s performance.