26 April 2012

Institutional Investors Backing Pershing in CP Fight Poll Suggests

Toronto Ontario - Three-quarters of Canadian Pacific Railway Ltd.'s institutional shareholders are backing a New York hedge fund's push for change at the railway, a poll by an investor advisory firm suggests.
 
Brendan Wood International said Thursday that 75 percent of the institutional shareholders it polled support Pershing Square Capital Management's plan to replace Canadian Pacific chief executive Fred Green.
 
The latest poll results, which included shareholders owning around 45 percent of Canadian Pacific's shares, were roughly in line with a survey last month by Brendan Wood that included shareholders holding about a third.
 
"You're getting very similar numbers. They're moving, I would say, in Pershing's favour a little bit, but they are already quite strong in their favour," said Stewart Borden, a partner at Brendan Wood.
 
Bill Ackman's Pershing Square wants former Canadian National chief executive Hunter Harrison to take over the top job at Canadian Pacific. The investment firm is also seeking to install seven nominees on the 15-member Canadian Pacific board at the railway's annual meeting next month.
 
The poll found that 19 percent of the institutional investors surveyed supported change at Canadian Pacific, but not Harrison. Just six percent backed the Canadian Pacific board.
 
The survey was completed 17 Apr 2012, before Canadian Pacific released its first-quarter results, but after the railway previewed its earnings by saying it expected a profit in the range of 80 to 83 cents per share.
 
Since the poll was conducted, Canadian Pacific reported a profit of 82 cents per share and a sharply improved operating ratio. It has also raised its quarterly dividend to 35 cents per share from 30 cents.
 
Canadian Pacific questioned the validity of the poll, which did not include retail investors.
 
"We believe that this survey, and its potentially skewed results, does not portray a fair representation of the views of CP's shareholder base," the railway said in a statement.
 
Canadian Pacific noted that the only vote that counts will be the shareholder vote at the company's annual meeting on 17 May 2012.
 
Pershing Square, which first disclosed its investment in CP last October, has a 14.2 percent share of the railroad.
 
The investment firm and Harrison have said Canadian Pacific can improve its operating ratio to 65 percent by 2015, a target that CP says can't be achieved in that time frame.
 
CP, which reported an operating ratio of 80.1 percent in its first quarter, has set a target of a 70 to 72 percent operating ratio for 2014 and between 68.5 percent to 70.5 percent for 2016.
 
The ratio represents the percentage of revenue required to pay for operations, so investors want railways to push the number lower in order to boost profitability.
 
In a report Thursday, BMO Capital Markets analyst Fadi Chamoun said Harrison has made a strong case for why he is the right candidate for the CEO job.
 
"We sense that a leadership strategy focused on operations would probably be welcome change by some of the operations rank and file of CP Rail," Chamoun wrote in a report.
 
"We believe that Mr. Harrison's management style and its perceived potential to cause friction with customers and regulators is exaggerated. A fluid railroad network produces consistent and superior velocity. Superior velocity produces lower costs and better service."
 
Shares in CP closed 32 cents higher Thursday at $76.44 on the Toronto Stock Exchange.
 
Craig Wong.