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Bill Ackman of Pershing Square Capital Management gestures as he speaks during a Pershing Square Capital Management town hall meeting for Canadian Pacific Railway shareholders meeting in Toronto on Monday, February 6, 2012.Pawel Dwulit/The Canadian Press

Canadian Pacific Railway Ltd. chairman John Cleghorn waded into the escalating war of words with its largest shareholder Bill Ackman by demanding that the activist retract "outrageous" accusations about the company's latest quarterly financial statement.

In a letter to Mr. Ackman dated and released today, Mr. Cleghorn demanded that the activist correct statements, made during a BNN interview earlier this week, that CP intentionally manipulated its first quarter earnings. Mr. Ackman said in the television interview that CP was able to improve its benchmark operating ratio "by 100 basis points" by not including executive bonuses in the calculation. Operating ratios are a closely watched measure of railway performance and CP has the poorest ratio of North America's top railways.

CP and Mr. Ackman, CEO of New York-based hedge fund Pershing Square Capital Management LP, have exchanged a furious volley of accusations in recent days as they campaign for shareholder support ahead of a May 17 proxy vote. Mr. Ackman, who acquired a 14-per-cent stake in the CP last fall, is seeking to turn around the underperforming railway by ousting its CEO Fred Green and replacing seven of its 15 directors with an alternative slate he has proposed.

After months of attacking CP's leadership, Mr. Ackman was unusually conciliatory in his response to Mr. Cleghorn's letter, when reached by telephone.

"I have always spoken the truth based on sources and facts I deem reliable. If the company is correct that they did accrue the same or greater amount of bonuses than it did last year then I am wrong," he said in an interview.

"This proxy contest is really about who the right directors are to lead the company forward and who is the right CEO to restore CP to greatness," he said.

Mr. Ackman's accounting accusation has been met with a wall of anger from CP, members of the board's audit committee and Mr. Cleghorn.

"It is outrageous for Mr. Ackman to make the accusations...To put the company's performance in a negative light, Mr. Ackman suggested that management deliberately distorted CP's financial results. He attacks the competence of our audit committee, which approved our first-quarter results."

"We demand that you publicly retract your untrue accusations and offer your apology to the company, our shareholders, our board of directors, our audit committee, and the dedicated employees whose integrity you called into question," Mr. Cleghorn said.

Meanwhile, members of the Teamsters Canada Rail Conference have endorsed a strong strike mandate at CP. The union said 95 per cent of those who cast ballots voted in favour of walking out, if necessary, after May 22.

The Teamsters represents 5,000 workers, including conductors, locomotive engineers and rail traffic controllers.

The two sides have been in labour talks since last October. "Despite months of bargaining, the railway continues to seek major concessions on pensions, work rules and wages," the union said in a statement.

CP responded Friday that "a number of productivity and efficiency enhancing items are on the table for discussion to continue to drive service. More negotiations are planned for May and we remain optimistic that a negotiated settlement will be reached."