Activist investor William Ackman has found a new ally in the Ontario Teachers’ Pension Plan to elect his nominees to the board of directors of Canadian Pacific Railway (TSX:CP) and replace the railway’s current CEO.
Teachers’ said Monday that it’s backing the seven board nominees of Ackman’s Pershing Square Capital Management and the move to replace CP chief executive Fred Green with Hunter Harrison, former head of rival Canadian National Railway (TSX:CNR).
“CP has failed to persuade us that Mr. Harrison would be a liability for CP,” Teachers’ said in making its decision.
Ackman said support from one of Canada’s largest pension fund managers sends a strong signal for change.
“This vote, from one of Canada’s most important institutions, sends the strongest possible signal that the past has been unacceptable, and that the future must be different,” Ackman said in a statement.
“A loud and clear message from shareholders will enable the reconstituted board to put the past behind it, have a fresh start, and work most efficiently and effectively toward our shared goal.”
Canadian Pacific urged the pension fund to reconsider its decision and support the railways board nominees.
“CP will continue soliciting shareholders to vote in favour of the CP Board Nominees up until voting is closed on May 17th,” the railway said in a statement.
“We urge the Ontario Teachers’ Pension Plan to reconsider its decision and to support the CP Board Nominees and the continued creation of value through the aggressive and successful execution of CP’s Multi-Year Plan.”
Teachers’ said CP isn’t meeting expectations.
“We note CP’s performance has been below its peers during Mr. Green’s tenure as CEO and are not convinced that the most recent results provide irrefutable evidence that CP is performing better than its peers,” said Teachers’, which became a shareholder Dec. 31.
Ackman issued another letter to Canadian Pacific shareholders on Monday calling for the election of his nominees to the railway’s board at its annual meeting on May 17.
“With your support, the nominees for management change will work to recruit new leadership at CP, reverse its six-year decline and restore the company to its rightful position as one of the best-performing railways in North America,” Ackman writes in his latest salvo.
Ackman, whose fund is the railway’s largest shareholder with 14.2 per cent of its stock, has been manoeuvring to get Harrison as the CEO of CP Rail.
“On May 17th, the shareholders of Canadian Pacific will have the opportunity to decide the future of this iconic railway,” he said.
Ackman, who reiterated that the changes he seeks will result in a better performing railway and “deliver enormous shareholder value,” said his campaign had already received “overwhelming support and encouragement.”
A recent poll of shareholders holding 45 per cent of Canadian Pacific stock by independent research firm Brendan Wood found the vast majority supported change at the railway, while just six per cent backed the incumbent board.
Last week, proxy advisory firm Institutional Shareholder Services Inc. gave its backing for a shakeup of the board and the replacement of Green.
ISS recommended that shareholders vote for all seven of the nominees the New York hedge fund. The firm also backed nine of the nominees CP has put forward for the 16-member board. Ackman is included on both the management and dissident slates.
CP has said ISS reached the “wrong conclusion”’ and that its analysis was “flawed.”
It reiterated that its board is unanimous in its view that replacing Green with Harrison “would delay and damage CP’s value-generating plan and represents unwarranted risk to shareholder value at a critical time.”
The crux of CP’s plan, as well as Pershing’s criticism, revolves around how the railway will improve its operating ratio — the percentage of revenue required to pay for operations — to boost profitability.
CP has set a target to bring the ratio down from 80.1 per cent to 70 to 72 per cent for 2014, but Pershing says it can do better and achieve 65 per cent by 2015.