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CP pushes full steam ahead on proxy fight

Canadian Pacific Railway Ltd. is hoping to gather momentum in a proxy fight when it releases its first-quarter results on Friday, counting on shareholders to warm up to the freight carrier's turnaround strategy.

With one month to go before Calgary-based CP's showdown against hedge fund Pershing Square Capital Management LP, the railway is in a race against time to prove to skeptical investors that it has the right management team in place to implement a recovery plan.

In 2008, CP embarked on a cost-cutting campaign titled Execution Excellence for Efficiency, or E3 – long before Pershing Square chief executive officer Bill Ackman emerged last fall to pressure the railway to streamline operations.

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The E3 campaign has been just one of several attempts by CP CEO Fred Green to chop expenses and raise revenue during his six years as CP's boss. Cormark Securities Inc. analyst David Newman said Mr. Green and other executives have tried multiple plans, and CP shareholders are now examining the merits of Pershing Square's proposal to install former Canadian National Railway Co. CEO Hunter Harrison to replace Mr. Green.

CP said last week that it expects its first-quarter profit will be nearly four times higher than in the same period of 2011, but Mr. Newman noted that "success should not be measured on one quarter." Last year, severe winter weather and spring flooding hampered CP.

A major institutional shareholder said in an interview that an impressive first-quarter showing by CP won't sway his opinion that Mr. Harrison is better suited to lead CP. "E3 gets a failing grade in my books," said the investor.

CP has moved onto a new multiyear plan, and Merrill Lynch analyst Ken Hoexter sees signs that the strategy is starting to pay off, notably with increased train speeds and other improvements to bolster freight deliveries.

Still, TD Securities Inc. analyst Cherilyn Radbourne wondered whether CP's recent financial gains will be enough to fend off Pershing Square as the battle heads toward a showdown at the railway's annual meeting on May 17 in Calgary. "Our sense has just been that it might be too little, too late for a frustrated shareholder base," she said in a research note.

New York-based Pershing Square has expressed concern about CP stalling before it publicly announces the voting results of whether shareholders will back the current board of directors or Pershing Square's alternative slate of nominees.

CP is staying upbeat in the homestretch. "We welcome the support we have received from shareholders. CP shareholders will be able to cast their votes in favour of the best qualified directors up until the announcement of the formal close of voting at the annual meeting," a railway spokesman said.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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