Bill Ackman, CEO and portfolio manager of Pershing Square Capital Management, speaks at the Ira Sohn Investment Conference in New York in this May 8, 2013, file photo. Mr. Ackman is selling his nearly 18-per-cent stake in struggling department store chain J.C. Penney.BRENDAN MCDERMID/Reuters
Bill Ackman's Pershing Square Capital Management LP just showed everyone how the Canadian Pacific Railway Ltd. situation could have played out had CP realized early on what a weak hand it was playing.
Mr. Ackman's firm has reached a settlement with the board of its biggest investment, Air Products and Chemicals Inc., getting what it wanted with a minimum of mess.
Both situations started out quite similarly.
Mr. Ackman and his team found gold at Canadian Pacific Railway Ltd. when the hedge fund's managers realized they had a beautiful contrast.
Canada boasted the best-performing railway in North America and the worst. It was a tidy, binary comparison.
Mr. Ackman's team found a similar situation at Air Products, a U.S. company in the industrial gases business. Air Products' numbers stuck out among a small group of rivals as a weak performer.
However, when Mr. Ackman and his team tried to negotiate with CP's incumbent board, they got nowhere. That led to many months of sparring and many millions of dollars spent. Mr. Ackman's group got what it sought. Canadian Pacific's shareholders replaced much of the board with the slate Mr. Ackman's team wanted, and brought in the chief executive Pershing recruited, former Canadian National Railway Co. head Hunter Harrison.
Air Products seems to have recognized its lack of leverage. After initial meetings with Mr. Ackman, whose firm had bought about 10 per cent of the company, the company saved itself months of agony by announcing that its chief executive officer would "retire," and the board's composition would shift to include three new people. Two of them were brought up by Pershing Square, and will be on the CEO search committee, the Wall Street Journal reported.