Hunter Harrison is back, and the first order of business is taking a $38-million charge to become chief executive officer at Canadian Pacific Railway Ltd. before forging ahead to turn around the underperforming freight carrier.
Mr. Harrison is encouraged by what he has seen so far as CP’s new CEO, saying he will carry out his duties without worrying about winning any popularity contest.
“There are some people out there that see me as the big bad wolf and think I’m going to walk in here and not do things positive for the organization and they’re not really pleased about that. But at the same, I’ve been pleasantly surprised,” Mr. Harrison said Wednesday during his first conference call with analysts since taking over as CP’s CEO.
The former Canadian National Railway Co. boss replaced Fred Green as CP head on June 29, six weeks after Pershing Square Capital Management LP won a proxy fight against CP.
CP’s second-quarter profit fell 20 per cent as the firm incurred a $38-million charge related to hiring the new CEO and suffered a nine-day strike in May.
Calgary-based CP took a charge of 16 cents a share stemming from the appointment of Mr. Harrison, plus the railway incurred further costs through a $4-million retirement allowance recorded for Mr. Green’s exit in May.
In January, Pershing Square CEO Bill Ackman vowed to guarantee Mr. Harrison’s CN retirement benefits if CN prevails with its legal complaint against its former CEO.
Montreal-based CN is seeking a declaration that it made a reasonable and lawful decision to cancel Mr. Harrison’s pension benefits with a present value of more than $20-million and nearly $18-million in restricted share units.
CN alleges that Mr. Harrison breached provisions of his retirement deal with Canada’s largest railway.
CP said Wednesday that it has backstopped Pershing Square’s decision to give an indemnity to Mr. Harrison to protect him from CN’s litigation.
“Included in this charge were amounts totalling $16-million in respect of deferred retirement compensation for Mr. Harrison and $20-million which was payable at June 30, 2012, to Pershing Square Capital Management LP and related entities,” CP said.
“The amount payable to Pershing Square and related entities was to reimburse them, on behalf of Mr. Harrison, for certain amounts they had previously paid to or incurred on behalf of Mr. Harrison pursuant to an indemnity in favour of Mr. Harrison.”
CP also agreed to indemnify its new CEO for up to $3-million in legal costs and granted stock options and deferred share units to him valued at $12-million.
As well, CP pegged its advisory costs in the proxy battle at 6 cents a share.
CP posted a $103-million profit for the three months ended June 30, compared with $128-million in the same period of 2011. CP calculated the impact of the strike in May at 25 cents to 30 cents a share.
By contrast, rival CN chugged ahead with a 17-per-cent increase in second-quarter earnings.
CN enjoyed a smooth quarter as it rolled to a $631-million profit, up from $538-million a year earlier. Its adjusted share profit jumped 19 per cent to $1.50, while revenue climbed 13 per cent.
CN CEO Claude Mongeau said his railway is “mindful” of Mr. Harrison’s move to the top job at CP. “We will just wish him and the rest of the CP team good luck, and focus on our own agenda,” Mr. Mongeau said.
After visiting CP’s railyards over the past four weeks, Mr. Harrison said he is optimistic that the company will become more efficient.
“A lot of us don’t like change, and people that don’t like change are probably going to be in the wrong place because there is going to be some of it. I’m not here tell you that everybody’s having pep rallies out there,” he said.
Mr. Harrison, 67, said he will be putting his own stamp on CP, but agrees with a strategy in place to run longer trains on upgraded tracks to move goods more swiftly.
“I’ve been away for a little while, and other people have accused me of having a little rust. I got most of the rust off,” he said.
In May, New York-based Pershing Square won the bitter proxy contest that forced Mr. Green to resign as CEO and also led to the ouster of then-CP chairman John Cleghorn and several other CP directors.