The Ontario Teachers’ Pension Plan has joined the ranks of the dissidents heading into a showdown with the board and management of Canadian Pacific Railway Ltd.
The decision by one of the railway’s biggest shareholders adds to the strong momentum building against CP and in favour of activist Bill Ackman of Pershing Square Capital Management LP, who is proposing a slate of seven directors. It increases the pressure on the railway to try to strike a deal to avoid an embarrassing defeat at CP’s May 17 annual meeting in Calgary.
Teachers said Monday it will withhold its votes for CP chairman John Cleghorn, chief executive officer Fred Green and the other 13 incumbent directors, including long-serving members such as former Westcoast Energy Inc. CEO Michael Phelps and former Ipsco Inc. CEO Roger Phillips.
CP, which announced last month that its first-quarter profit quadrupled to $142-million, has been touting its own turnaround strategy while opposing Pershing Square’s plans to install former Canadian National Railway Co. CEO Hunter Harrison as a replacement for Mr. Green.
Teachers said rivals are outperforming the Calgary-based railway. “We note CP’s performance has been below its peers during Mr. Green’s tenure as CEO and are not convinced that the most recent results provide irrefutable evidence that CP is performing better than its peers,” Teachers said. “CP has failed to persuade us that Mr. Harrison would be a liability for CP. We believe that CP’s multiyear plan (MYP) is similar to those previously executed by Mr. Harrison and that a change in management would not imperil the success of executing the MYP.”
Mr. Ackman welcomed the strong endorsement, saying he is “honoured” to have an investor of Teachers’ “calibre supporting us full-heartedly. We view them as partners and we are going to work with them and all shareholders for the best possible outcome.”
Mr. Ackman added that there are no planned settlement negotiations with CP. “We are going ahead with the shareholder vote,” he said.
New York-based Pershing Square is CP’s largest shareholder, with 24.16 million shares or a 14.2-per-cent stake, while Teachers holds roughly 2.3 million CP shares, or a 1.33-per-cent interest.
“In view of CP’s relative historical underperformance, the proven success of Mr. Harrison executing similar [multiyear plans] and the absence of compelling evidence that his appointment is harmful to CP, we believe there is more risk in maintaining the status quo and support change at CP,” Teachers said on its website.
In addition to Mr. Ackman and his hedge fund partner Paul Hilal, the alternative slate includes former Norfolk Southern Corp. vice-chairman Stephen Tobias, Alberta Enterprise Corp. chairman Paul Haggis, corporate restructuring specialist Gary Colter, former Onex Corp. executive Anthony Melman and Rebecca MacDonald, executive chairwoman of Just Energy Group Inc.
CP is holding out hope that Teachers might alter its voting strategy. “We urge the Ontario Teachers’ Pension Plan to reconsider its decision and to support the CP board nominees and the continued creation of value through the aggressive and successful execution of CP’s multiyear plan.”
Meanwhile, the International Brotherhood of Electrical Workers said it has been “approached by a number of CP managers who expressed their disappointment and frustration in dealing with CP,” so the union invited the supervisors to join the IBEW. The company would not comment.