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Canadian Pacific Railway

Support is growing for investor activist Bill Ackman as more Canadian Pacific Railway Ltd. shareholders say they back a push for management change in an intensifying proxy fight.

Consulting firm Brendan Wood International said Thursday that 94 per cent of CP shareholders polled favour a shakeup at the top, including strong support for an attempt by Mr. Ackman's Pershing Square Capital Management LP to install a new chief executive officer at the railway.

Brendan Wood's latest survey, conducted April 17, canvassed CP shareholders representing about 45 per cent of the company's outstanding shares.

New York-based Pershing Square wants Hunter Harrison, the former CEO at rival Canadian National Railway Co., to take over as CP's chief. But CP's board has rallied around current CEO Fred Green, insisting he is best suited to remain as CEO and arguing that a multiyear turnaround plan is working.

In the latest survey, 75 per cent of those polled said they support Pershing Square's change initiative and 19 per cent indicated they endorse change, but not Mr. Harrison.

The survey follows a poll of CP's investor base on March 16, when Brendan Wood interviewed shareholders representing about one-third of the railway's investors. The March poll showed that 91 per cent of the railway's shareholders canvassed favour change, including 73 per cent of the respondents giving the thumbs-up to Pershing Square and 18 per cent backing change, though not Mr. Harrison. Support for CP's board has declined over three surveys conducted, falling from 14 per cent in February to 9 per cent in March to 6 per cent in April.

Canada's second-largest railway played down the latest survey results, saying in a statement that it "questions the validity of the findings of the incomplete shareholder survey" and "we believe that this survey, and its potentially skewed results, does not portray a fair representation of the views of CP's shareholder base."

CP reiterated that its recovery strategy, including running longer and faster trains, has momentum. "Rather than work with the board, Pershing Square demanded that CP install Mr. Harrison as CEO and threatened 'nuclear winter' if CP did not acquiesce," CP said.

BMO Nesbitt Burns Inc. analyst Fadi Chamoun said the former CN boss has a wealth of experience to help CP deal with severe weather, steep terrain, unions and shippers.

"We believe that Mr. Harrison's management style and its perceived potential to cause friction with customers and regulators is exaggerated," Mr. Chamoun said in a research note.

Brendan Wood said investors "seem hard-pressed to accept CP board's near-dismissal of expressions of shareholder dissatisfaction."

The proxy battle is headed for a showdown at CP's annual meeting in Calgary on May 17, when voting is slated to close for competing slates of director nominees.

Brendan Wood polled shareholders before Calgary-based CP issued rosy financial results on April 20, notably a quadrupling of its first-quarter profit to $142-million. But Pershing Square, CP's largest shareholder, has countered that the railway's operating cost-to-revenue ratio remains stubbornly high. A lower number is better for the operating ratio.

Stewart Borden, a partner at Brendan Wood, said in an interview that his firm stands by its methodology. "We are speaking to the largest shareholders. We do this globally in different sectors," Mr. Borden said. "We have access to a lot of the major shareholders, and they're interested as well in this information."

Canadian Pacific (CP)

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