The fight for control of Canadian Pacific Railway Ltd. heated up Tuesday when Hunter Harrison, the proposed replacement CEO, claimed his side is in the lead when it comes to signing up proxy votes.
Mr. Harrison, the nominee for chief executive officer proposed by New York hedge fund Pershing Square Capital Management, said in an interview on Business News Network that “we are very comfortable and pleased with the response so far, and think we are clearly out in the lead.”
Mr. Harrison would not cite specific numbers, but said he is getting a “good reception” to the Pershing Square message from institutional shareholders.
CP’s largest shareholder is Pershing Square, run by activist investor Bill Ackman, which wants to replace CEO Fred Green and install several new board members at the railway because of its relatively poor performance. A shareholder vote is scheduled for May 17 in Calgary.
The incumbent board at CP led off the battle Tuesday when two company directors took questions from an analyst on a conference call. They insisted the railway is moving ahead with a multiyear plan to improve its performance, and said the proxy fight is proving to be a damaging distraction.
A new management slate “would really set CP back,” director Tony Ingram said. “Why jeopardize the company with that risk?”
Director Edmond Harris said Mr. Harrison brings “a bit of baggage with him” because of a legal dispute he is having with Canadian National Railway Co., where was previously CEO, about his pension, and because he ruffled feathers with regulators and politicians when he was head of CN.
In the later interview, Mr. Harrison said he disagrees, although “I am direct and honest and call a spade a spade. If that’s baggage, I’ve got baggage.”
Mr. Harrison said it would be nice to talk over the issues with Mr. Green and CP chairman John Cleghorn, but there has been no invitation to meet. He said there have been no direct contacts been the two groups, as far as he knows.
“I offered to, and wanted to, sit down and meet Mr. Cleghorn,” Mr. Harrison said, but CP has refused. “It is hard to improve a relationship when you don’t have a dialogue.”
One of the key issues in the dispute is CP’s operating ratio, its costs as a percentage of revenue. The ratio was at 81.3 in 2011, behind other North American rail companies. CP said it will lower this key performance measure to between 70 and 72 by 2014.
A spokesman for the company said Tuesday that shareholders have expressed support for that plan, and it “is only the beginning – as we achieve our goals, we will set new targets.” Pershing Square has “no plan or clear timeline,” he said.
Pershing Square has, however, said the ratio should come down to 65. Mr. Harrison said he can achieve that because he has done so at other railways. “My track record is pretty solid,” he said.
Mr. Harrison also said he will draw on his contacts in the railway business across North America to take senior positions at CP if he ends up in the top job. If the proxy battle fails, he said, he would “turn the page and move on.”
Last week Mr. Cleghorn sent a letter to shareholders saying that installing Mr. Harrison would put CP’s forward momentum at “severe risk,” and insisting that he has full support from the existing board to maintain the status quo.
The letter included endorsements for the existing management team from executives at major customers, including Teck Resources Ltd. CEO Don Lindsay, Jim Prokopanko, CEO of Mosaic Co, and Canadian Tire Corp. executive vice-president Pat Sinnott.
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