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Hunter eyed for CP’s top post

Retired railway CEO Hunter Harrison could boost earnings at Canadian Pacific Railway Ltd. by more than a $1 billion a year by cutting costs and improving operations if he were to come out of retirement and run the railway, an analyst said Friday.
Hunter Harrison
Hunter Harrison prepares to address shareholders at the CN annual meeting in Calgary on April 21

Retired railway CEO Hunter Harrison could boost earnings at Canadian Pacific Railway Ltd. by more than a $1 billion a year by cutting costs and improving operations if he were to come out of retirement and run the railway, an analyst said Friday.

Edward Jones analyst Brian Yarbrough said it would take Harrison time, but he could add as much as $1.2 billion in net earnings — or $7 per share — to Canadian Pacific’s annual results.

“He’s not going to get that today — it would be two or three years down the road,” Yarbrough said.

Canadian Pacific is “one of the poorest run railroads from a margin point of view” and Harrison would be able to improve CP’s earnings power, said Missouri-based Yarbrough.

The comments come after a report that Canadian Pacific’s largest shareholder has approached the 67-year-old Harrison to replace chief executive Fred Green, who has been head of Canada’s second-largest railway since 2006.

Harrison has a reputation as an astute railway operator, both in his native United States as well as at Montreal-based Canadian National Railway, which has long been ranked the best-run of North America’s six biggest rail operators.

“Obviously, Hunter Harrison is a railroad icon,” Yarbrough said.

“He’s very knowledgeable and has a lot of experience improving operations and running a more fluid railroad. That’s really what Canadian Pacific needs right now.”

The Globe and Mail newspaper reported Friday that shareholder Bill Ackman, who has spent more than $1 billion to amass a 14.2 per cent stake in CP, has approached Harrison to replace Green.

The report said Harrison has expressed interest in returning to work, but is waiting for the expiration of a non-compete agreement signed when he retired from CN (TSX:CNR) in 2009.

Canadian Pacific (TSX:CP) and CN both declined to comment on the report.

Before the leadership roles he held at CN — chief operating officer from 1998 to 2002 and chief executive from 2003 until his retirement in 2009 — Harrison was CEO of the Illinois Central Railroad from 1993 through 1998.

Canadian Auto Workers union president Ken Lewenza said Harrison was the driving force at CN.

“Hunter Harrison ran CN with an iron fist,” he said. “The reality is that he did very good for himself and quite frankly was good for the company because there was incredible growth and he left a good management team behind.”

But Lewenza said it wouldn’t be right if Harrison came out of retirement to lead a rival.

“To me, it would be an awful conflict for the former CEO of CN to move to a competitor while collecting a pretty handsome pension from CN,” he said.

Harrison, who’s from Tennessee, now raises horses and was recently named board chairman of the U.S. National Horse Show Association.

Lewenza said the union had its share of differences with Harrison, but they both had the goals of growing CN and enhancing job security, adding that Harrison also handled health and safety issues well.

Yarbrough said Green has done a “decent but not outstanding job” but had to deal with the economic downturn and some very bad weather.

“It’s been nightmare after nightmare for him,” he said. “I think the circumstances have been very difficult for him due to the weather issues. It has been a very tough operating environment in 2011 and unfortunately that’s what everyone remembers.”

Canadian Pacific was affected by extensive spring flooding, experiencing almost 90 separate outages during its second quarter.

Its main north-south corridor to Chicago was out of service for 23 days because of massive flooding along the Souris River, which flows through Saskatchewan, Manitoba and North Dakota.

Canadian Pacific has also been plagued for years by a bottleneck and congestion at the Port of Vancouver and struck a deal in 2008 to streamline traffic in and out of the port.

Yarbrough said the problem can be fixed.

“The hard part is that everyone always blames the rails,” he said, adding the railway, the port and shippers all have to work together.

Ackman’s hedge fund has revealed previously in regulatory documents that it’s is looking for changes to Canadian Pacific’s business and operations, management and board of directors.

Pershing Square Capital Management LP, a New York-based firm controlled by Ackman, said early in December that it was “engaged in ongoing discussions” with representatives of the railway.

Pershing Square disclosed on Oct. 31 it spent US$1.1 billion to accumulate a 12.2 per cent stake in the railway. Its position in Canadian Pacific has increased slightly since then.

Canadian Pacific shares closed up $2.49 or 3.74 per cent at $69.01 on Friday.