Hedge fund manager Bill Ackman built up a 12.2% activist stake in Canadian Pacific Railway (CP), known affectionately as “CP Rail,” back in October. He said “that CP Rail shares are undervalued and an attractive investment, and that it expected ‘to engage in discussions’ with the Calgary-based company about a wide swath of its business.”
Ackman Working with CP Rail to Increase Shareholder Value
Ackman’s hedge fund, Pershing Square, is an activist hedge fund, meaning that it buys positions in companies that are large enough to give the fund a say in the company’s operations, then he pushes for changes that will incraese shareholder value. There were rumors for a little while that Ackman would sell the railroad, which the savvy fund manager quickly put to rest. “We don’t think the company should be sold,” said Ackman. “This is not a case where we’re pushing to sell the company. We don’t think that’s a good way to optimize the outcome for shareholders.” In turn, CP Rail told employees it is “open to the views of its shareholders.” It said, “We will speak with Pershing Square to hear their input into our plan, already targeted at realizing greater efficiency and improved service reliability.”
The Issue of CP Rail’s Management
One of the maor issues on Ackman’s agenda was the railroad’s management. By early November, it was reported that Ackman had his sights set on CP Rail’s Fred Green. “Green, who has worked for CP Rail for 31 years and took over as chief executive in 2006, is blamed for tolerating a culture that critics cite as the key reason why CP Rail’s performance lags behind the US and Canada’s six other Class I railroads.” Now, it appears Ackman has earmarked his champion.
Canada’s the Globe and Mail reports that Ackman is looking for “retired railway legend” Hunter Harrison get CP Rail back on track. Harrison “led a widely admired turnaround of Canadian National Railway (CP Rail’s main rival) from 2003 to 2009 as CEO, and before that at Illinois Central Railroad.” Evidently, Ackman is hoping Harrison can do the same ting at CP Rail. Ackman had used a similar strategy when he took an activist stake in department store J.C. Penney & Co. (JCP) and recruited ex-Apple exec Ron Johnson to head the company’s turnaround, a move he refers to as “one of the most significant contributions that we have ever made to any company.”