The U.K. investor trying to oust the leadership at Canadian National Railway Co. is huddling with other shareholders and introducing them to the railway veteran he is pushing to run the company.
Christopher Hohn, whose company The Children’s Investment Fund Management Inc. (TCI) owns CN shares worth about $4-billion, is trying to win support for his battle for the railway’s boardroom, arranging online and in-person meetings between shareholders and the slate of people he wants to replace CN’s chairman Robert Pace, chief executive officer Jean-Jacques Ruest and two directors.
“We are in the campaign stage,” Mr. Hohn said. “Ultimately the shareholders are going to decide. They own the company, not the board.”
Mr. Hohn is unhappy with the performance of CN’s share price, its profitability, revenue growth and, lately, its botched attempt to take over Kansas City Southern Railway Co. He has called for a shareholder vote on his proposed new members. CN has until Oct. 7 to schedule a vote, according to Canadian law.
“The company has had an operational and performance problem for the last few years. We attribute that to a weak CEO and a weak board. Both need to be upgraded,” Mr. Hohn said, noting the CEO and board members lack railway operations experience.
CN responded to Mr. Hohn’s calls for a shakeup on Sept. 17 with a plan to cut spending, resume share buybacks, review non-rail divisions for possible sales and lay off about 1,050 people. CN said the plan would boost 2022 profits by 20 per cent and improve the company’s operating ratio to 57 per cent.
CN declined to address questions about Mr. Hohn’s criticisms of its leaders. Mr. Ruest, who was not available for an interview on Friday, defended his own leadership in a conference call with analysts.
Mr. Hohn said CN’s operational review is an admission it is in trouble, but said the plan is pointless without changing the people at the top.
“We actually think that the plan they announced is quite dangerous because they don’t have the leadership in place that are capable of executing it,” Mr. Hohn said. “That’s why we got into this mess in the first place. If you try to drive dramatic change when you don’t know what you’re doing, you can screw up the network and totally screw up the fluidity of the network and jam it up.”
“Why did they wait for four years of poor performance … before they did anything?” Mr. Hohn said. “If they didn’t have the operational people capable of implementing the plan for the last four years, why are they suddenly going to have these people?”
Mr. Hohn, the 55-year-old son of a Jamaican car mechanic, is a billionaire philanthropist who founded TCI in 2003 and paid himself US$1.3-million a day last year. He is a veteran of boardroom battles at Deutsche Boerse, ABN Amro, U.S. railway CSX Corp. and other companies.
Werner Seifert, Deutsche Boerse’s then CEO, wrote a book about the 2005 fight for control of the stock exchange titled Invasion of the Locusts, and labelled Mr. Hohn “leader of the swarm.”
In his campaign at CN, Mr. Hohn’s pick for CEO is Jim Vena, who worked at the railway for 40 years before leaving after being passed over for the CEO job in 2016. Mr. Vena became operating chief at Union Pacific Railroad Co., and was credited with large performance gains at the second-largest North American railway.
Mr. Hohn’s other candidates are railway veteran Gilbert Lamphere for CN chairman; and director candidates Allison Landry, a banker and director of XPO Logistics Inc.; Rob Knight, former finance chief at Union Pacific; and Paul Miller, a former CN executive.
TCI is CN’s second-largest stockholder, with 5.2 per cent of its shares. Charles Emond, CEO of CN’s 10th largest shareholder, the Caisse de dépot et placement du Québec, told Bloomberg News the fund supports CN’s board in its fight with TCI. Other large CN shareholders have declined to comment, including Bill Gates’s Cascade Investment LLC, the largest investor at 13.3 per cent.
Mr. Hohn conceded support for his campaign is not 100 per cent, and said it is too early to predict which investors will support him. “I would say there is overwhelming support, in my opinion, that there should be a new CEO,” he said. “Some will say the board needs to run a process and Jim [Vena] needs to be part of that process. We’re fine with that. That’s the appropriate process.”
Mr. Hohn first raised objections to CN’s direction in May, after the Montreal railway tried to outbid Canadian Pacific Railway Ltd. for KCS, saying CN’s leaders should resign if they failed. CN misjudged the U.S. regulator’s antitrust standards, and put at risk C$2-billion in fees if it pushed ahead with a bid that would ultimately fail, he warned.
In the end, KCS’s board agreed to CP’s lower bid. That happened after the U.S. regulator, the Surface Transportation Board, blocked a preliminary step in CN’s plan: the formation of a voting trust to independently operate KCS while awaiting a ruling on the takeover.
William Ackman, the activist investor who led a boardroom coup at CP in 2012, says CN “completely bungled” the KCS deal, and speculated the railway attempted the takeover for all the wrong reasons.
“Sometimes management team [will] go and do an acquisition trying to cover up for underperformance, and this smells a bit like that,” Mr. Ackman said in a recent interview. He no longer owns shares in CP and is not invested in CN.
“Sometimes companies get complacent, and … I’m not too close to the CN situation but I think that’s what appears to have happened here,” Mr. Ackman said, describing Mr. Hohn as “very talented, very smart, very capable. I have a lot of respect for Chris Hohn.”
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