Strikes are never good news for stocks, with investors worried that the immediate damage to a company’s operations will extend well beyond the life of the labour conflict. Canadian Pacific Railway Ltd. is no exception: 4,800 workers have walked off the job as of Wednesday, halting the railway’s freight operations, threatening to cost the Canadian economy about $540-million a week (in the estimate of Canada’s Labour Minister) and sending the share price down 1.5 per cent in afternoon trading.
CP’s shares are now down nearly 7 per cent from their recent high in March and Wednesday’s decline continues a sideways drift that has persevered since early February. That’s right, despite activist investor Bill Ackman’s recent victory over CP’s board – where shareholders sided with his efforts to replace the railway’s chief executive and various board members – the share price is reflecting little optimism that the shakeup is about the produce big results.
To be fair, no one is suggesting that the work ahead is easy. Mr. Ackman wants to reduce CP’s operating ratio – a key measure of efficiency, where low is better – to 65 per cent from 83 per cent in four years. And that seems to entail pushing new employees to accept a watered-down pension plan, which is the source of the current strike.
The labour conflict, then, can be seen as a test as to whether Mr. Ackman’s plans to turn CP into a leader from a laggard will succeed. CP’s union has its work cut out, too: Ottawa is contemplating back-to-work legislation, which will certainly take away the union’s leverage. It is also facing an uphill battle, in that the move from defined benefit plans to less costly defined contribution plans have become awfully popular among employees looking to cut costs.
But whichever way this labour dispute goes, the early indication on Mr. Ackman’s turnaround plan is clear: It is going to take a lot of work and will trigger a lot of conflict. The question is whether investors will hold on for the full journey.