Pershing Square's Bill Ackman is waging war against Canadian Pacific (CP). The battle began when CP Chairman John Cleghorn filed a public letter with the SEC on January 3rd that accused Ackman of leaking information to the media regarding his support of Hunter Harrison, the former CEO of CP rival Canadian National (CNI). The media in question was Canada's Globe and Mail which, along with a variety of other news outlets, reported on December 30 that Ackman had his eye on Harrison as a replacement for CP's current CEO Fred Green. Ackman, who has a roughly 14% stake in CP, responded immediately to Cleghorn's letter, saying that he has a plan to improve CP's performance "and that plan begins with a new leader." Others seem to agree with Ackman on this one - JP Morgan, for instance, upgraded CP from neutral to underweight on expectations that Harrison will become CEO.
Cleghorn responded with an open letter to shareholders in which he and the board express their unconditional and unanimous support for Green and lay out a multi-year plan designed to drive growth and cut costs. 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, like CNI, the company which Harrison turned around. Ackman believes so strongly in Harrison (or at the very least has such little faith in Green) that he is threatening a proxy fight. "We have a legendary C.E.O. with an incredible track record," said Ackman. "Who better to bring an underperforming competitor up to snuff?"
Ackman is no stranger to going up against company boards. He has overseen several activist campaigns. He went up against the board of J.C. Penney Co., Inc. (JCP) pushing for ex-Apple exec Ron Johnson, a move Ackman describes as "one of the most significant contributions that we have ever made to any company." Ackman also pushed Wendy's Company (WEN) to spin off its Tim Horton (THI) unit and helped investors double their shares through a large stake in McDonald's Corp. (MCD). Granted, Ackman is not infallible - he has made some "mistakes," losing big on Target Corp. (TGT) and the now-defunct bookstore chain Borders Group - but that doesn't mean he is wrong about Green.
And, Ackman isn't Green's only critic. William Brehl, president of Teamsters Canada Rail Conference Maintenance of Way, represents the roughly 4,200 CP employees responsible for maintaining, building and inspecting the tracks. "Our outlook, and the employee's outlook, and I would even guess the majority of management, is of the opinion that Fred Green has to go," said Brehl in a recent interview. "He hasn't done a good job for the past five years, and the last couple months have rendered him completely ineffectual."
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
