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CP ranks as the least efficient of North America’s Big Six railways, with operating costs equalling 82.4 per cent of its revenue in the first nine months of 2011. (Jack Kuiphoff/Canadian Pacific Railway/Jack Kuiphoff/Canadian Pacific Railway)
CP ranks as the least efficient of North America’s Big Six railways, with operating costs equalling 82.4 per cent of its revenue in the first nine months of 2011. (Jack Kuiphoff/Canadian Pacific Railway/Jack Kuiphoff/Canadian Pacific Railway)

COVER STORY

The fight for control of Canadian Pacific Railway Add to ...

Despite these setbacks, CP has been able to make converts out of some of its harshest critics. A few years ago, relations between CP and its largest client, Teck Resources Ltd., were so badly frayed that CP executives were taking pot shots during a quarterly conference call at the mining giant’s production problems at its B.C. coal mines. From Teck’s point of view, according to company insiders, the railway was costing it time and money with major Asian customers because train shipments of metallurgical coal to Asia-bound ships in Vancouver harbour were frequently delayed because of late or undersized CP trains.

Teck CEO Don Lindsay credits Mr. Green for repairing the relationship by committing last year to invest in increased train and track capacity and loading innovations that have enabled the mining company to speed up and increase the size of its coals shipments. In return, Teck signed a 10-year contract with CP to transport its booming metallurgical coal output bound for China and other ports.

“We’ve been pleased with their dedication to ensuring that we get the rail service we need. Fred Green understands that to grow the economy, especially in Western Canada, we need to work together to get the most out of the rail network,” Mr. Lindsay said.

For many of CP’s smaller clients, the railway still has long way to go to repair its reputation as an unreliable and indifferent transportation company.

“Surely to goodness, if a courier company can tell you where a parcel is, CP should be able to tell you where its train is,” said Richard Phillips, a canola famer near Tisdale, Sask., who, along with the local grain elevator operator, was forced to keep extra workers on hand for several days in February when CP failed to show up at the promised time with 50 railcars.

The railway never called to explain or apologize for the delay, Mr. Phillips said.

Although it is too early to predict how Mr. Ackman will play his hand at CP, recent meetings with railway executives and public communications from the investor suggest that a management overhaul is a top priority.

When Mr. Ackman first met with a handful of senior CP officials earlier this month, people familiar with the session said Mr. Green barely spoke. Leading the discussion was the railway’s chairman, Mr. Cleghorn.

Given Mr. Ackman’s track record with managers of underperforming companies, it’s easy to understand why Mr. Green had little to say.

In a quarterly letter to Pershing Square investors released this week, Mr. Ackman identified new management as one of his core strategies for “increasing long-term intrinsic value” at target companies. In his effusive account of the turnaround at J.C. Penney, Pershing Square’s largest investment, he trumpeted his recent recruitment of Ron Johnson, former retail chief of Apple Inc., to lead J.C. Penney’s recovery.

“I expect to look back on the decision by the company to hire Ron, and our role in identifying and recruiting him, as one of the most significant contributions that we have ever made to any company,” Mr. Ackman wrote.

He did not directly discuss management in the letter’s short four-sentence summary of the CP investment. But he left little doubt that the railway’s executive suite is a concern when he wrote that the railway’s poor performance “is generally not attributable to structural factors.”

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