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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)

CP sets up for proxy battle with brush off of Ackman Add to ...

In addition, we are revitalizing operating information technology systems to better manage our assets and service levels and to seamlessly interface with our customers. We expect these system upgrades to position CP to achieve labour efficiencies, improve asset management and provide better shipment visibility to all parties. We are also driving forward with our plans to apply predictive technologies in field operations to reduce costs, enhance supply chain transparency and increase operational efficiency.

CP’s market development efforts are a core component of achieving the target of a low 70s OR within the next three years, especially given that rising pension expense is anticipated to offset a majority of operating cost reductions in the near term. Growing volume demands positive and innovative relationships with customers and supply chain partners.

Similarly, constructive and collaborative relationships with municipalities, provincial, state and federal governments and First Nations have allowed for the fast and cost-effective implementation of major expansion projects such as the recent multi-year “Western Corridor Expansion Program.” CP’s management team has particular strengths in the area of relationship development. Our long-standing relationships with customers, government and regulatory officials, and members of the communities in which we operate are built on trust and mutual respect.

CP shareholders have benefited – and will continue to benefit – from the long-term contracts that management has negotiated with industry-leading companies. Innovative products and partnerships with new customers have opened new opportunities such as long-haul full train loads of ethanol and oil.

We are highly focused on delivering results through the implementation of our Multi-Year Plan, which includes specific targets reflecting enhanced asset velocity, labour productivity and capacity utilization. As illustrated at our 2011 Investor Day, our Multi-Year Plan will leverage our planned investments in the network and use of distributed power technology to increase the productivity of our Vancouver export coal and potash trains by more than 15%. In doing so, we will reduce the total number of trains required to service these two core business segments and associated crew costs. In addition to labour savings, these longer trains are more fuel-efficient and reduce track wear.

In the instance of export coal, we anticipate moving two-thirds of our largest customer Teck’s planned growth within existing train starts driving further productivity improvements. Similar plans are in place to lengthen transcontinental Intermodal trains, where we are projecting an 11% increase in train lengths as we absorb incremental volume on existing train starts.

At the same time we have taken actions to enhance our financial flexibility to support the execution of our plan. We have proactively managed debt maturities, utilized debt capacity to pre-fund required pension contributions to enhance near-term cash flow, and have been pursuing a wide range of opportunities to monetize certain non-core assets.

The Board’s overriding responsibility is to act in the best interests of the company, and we believe that Pershing Square’s repeatedly stated agenda of management change would be detrimental to the company and its shareholders.

The Board is confident in its approach and has welcomed the investment of a new, significant shareholder. This was evidenced when, only three business days after Pershing Square filed its initial 13D with the U.S. Securities and Exchange Commission on October 28, 2011, both the Chairman of the Board and the Chief Executive Officer of CP met in person with Bill Ackman and two other representatives of Pershing Square. On December 11, 2011, the Nominating Committee met with Bill Ackman and shortly thereafter offered him a seat on the Board. Over the course of the ten week period since October 28, 2011, there have also been subsequent in-person and telephonic discussions between members of the CP Board and representatives of Pershing Square, in addition to numerous discussions between CP’s financial and legal advisors and advisors to Pershing Square.

CP is focused on delivering significant value for all shareholders by executing on its publicly stated Multi-Year Plan to achieve a low 70s operating ratio in the next three years. We reiterate our offer to have Mr. Ackman join our Board so that a constructive board-level dialogue based on all the relevant facts and information can commence.

On behalf of the Board of Directors, we appreciate the continued interest and support of all CP shareholders.

Sincerely,



John E. Cleghorn

Chairman of the Board

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