Bill Ackman was just fastening in when his pilot shouted someone was blocking his private jet.
Standing on the tarmac at Montreal’s Pierre Elliott Trudeau Airport was the man with whom he had just met. John Cleghorn, chairman of Canadian Pacific Railway Ltd., was standing coatless next to the plane, wind-milling his arms.
What happened next on that frosty day Nov. 2 is hotly disputed between the two men. It lies at the heart of an unusually vitriolic corporate feud that erupted into war last week when Mr. Ackman, CP’s largest shareholder, launched a proxy battle to shake up the management of the underperforming railway.
According to interviews and e-mails obtained by The Globe and Mail, the subject of the tarmac talk was Fred Green, CP’s chief executive officer, whom Mr. Ackman , a New York shareholder activist, wants to replace with retired Canadian National Railway chief Hunter Harrison.
Mr. Ackman’s version of the conversation is that Mr. Cleghorn rushed to the plane to advise him that Mr. Green was prepared to accept the activist’s proposal. Mr. Cleghorn denies that he ever stated that Mr. Green would make way for his former nemesis.
Mr. Ackman gave his take on the disputed conversation in an e-mail he sent to Mr. Cleghorn Jan. 4.
“After pulling me off the plane, you explained to me that ‘Fred agrees with the logic of your presentation’ and clearly implied that he was prepared to step down. You explained that his principal motive for allowing Hunter to replace him was to get back at Canadian National because he hates them so much. You then said, ‘Welcome to Canadian Pacific!’ and shook my hand in a warm embrace,” the e-mail said.
Mr. Ackman said in an interview that he stepped back on the plane convinced he had just won the support he needed to change the railway’s leadership.
“There is no other interpretation of what he told me other than Fred Green was stepping down for Hunter Harrison to take his place,” he said.
Mr. Cleghorn said that Mr. Ackman has the story wrong. In an interview, he said that while Mr. Green “certainly understood the presentation” that Mr. Ackman made that day to replace him as CEO, “I don’t recall” Mr. Green offering to resign.
He also disagrees that he told Mr. Ackman that Mr. Green was prepared to make way for Mr. Harrison. “That did not happen,” he said.
What did happen next is a breakdown in communications between Mr. Ackman’s hedge fund and CP’s blue chip board of leading corporate chiefs that appears to have irreparably poisoned relations between the two sides.
Mr. Cleghorn became hard to reach, the board declined terms of Mr. Ackman’s demands for two board seats and there was no further discussion about replacing Mr. Green. After reports that Mr. Ackman was backing Mr. Harrison as CP’s CEO, Mr. Cleghorn publicly criticized the activist’s pressure tactic.
Mr. Ackman’s next move was an incendiary e-mail to Mr. Cleghorn, with the subject line “War and Peace.” The Jan. 4 communication warned CP’s chairman that his hedge fund Pershing Square Capital Management would launch a proxy battle criticizing the board’s track record as part of a bid to replace a minority of its 15 directors.
The e-mail was followed with an angry exchange of publicized letters between Mr. Cleghorn and Mr. Ackman, who last week launched his proxy contest.
In an interview, Mr. Ackman conceded he may have been overly “direct” to directors in his e-mail. But their displeasure should not distract them from doing the right thing at CP, which he says is to replace the management at a railway that is the least efficient major player in North America.
“The board’s job is to do the right thing for the corporation and shareholders without regard to their feelings. It doesn’t appear that this principle is driving their decision making. It is almost as if we had dinner and they didn’t like my manners and they are not going to do the right thing,” he said.