If activism is the new religion of shareholders, then its temple was the basement ballroom at Toronto's Hilton Hotel Monday morning.
More than 350 shareholders, financial analysts, bankers, lawyers and directors, some from as far away as San Francisco, crowded into the cavernous room. Signed up online were another 600 viewers. Directed by signs and screens that blared "CP Rising" the participants heard a two-and-a-half hour sermon about the need to reform one of Canada's oldest companies.
Indeed, the meeting took on the feel of a revival meeting: Bill Ackman the preacher, Hunter Harrison the saint and CP officers the sinners.
The meeting was called by activist investor Mr. Ackman to introduce Mr. Harrison as his choice as new CEO, and an alternative slate of five directors that he is campaigning to elect to Canadian Pacific Railway Ltd.'s board at a vote set for May 17. It marks the arrival in Canada of a new and aggressive brand of shareholder activism that has seen the leadership or strategies of once untouchable corporate giants such as J.C. Penney and Microsoft Corp. challenged.
Speaking in a caramel-rich Southern drawl, Mr. Harrison, the son of a Memphis police officer turned travelling sermonizer, laid out his plans to energize the culture, improve service and increase profits at a railway that ranks as the industry's least efficient major player. The former chief of CN, where he was famous for rallying the ranks with meetings known as Hunter Camps, Mr. Harrison delivered the kind of passionate oration that is seldom heard in the often dry world of Canadian shareholder meetings.
"When I tell you I am going to do something I will do it. I grew up in the business. I started at the bottom. Nobody appreciates a good business like I do," he said.
Warming to the crowd, he added that if he failed to deliver, "you can hang me in Times Square and you don't have to pay me."
In an interview after the meeting, Mr. Ackman framed his campaign to elect five new directors at CP as part of a broader "democratic process" that is shifting "the balance of power back to owners" or shareholders. Investors have waged proxy battles against small and mid-sized companies for years, but activists have only recently gained the financial muscle to confront major companies.
"Large companies of scale have never been pushed to do anything by anyone," he said, because major institutional investors have been "too passive" to challenge the business establishment. The growth of activist hedge funds such as Mr. Ackman's Pershing Square Capital Management, which has more than $11-billion (U.S.) of assets under administration, gives him the leverage to make major bets. He spent $1.4-billion to acquire a 14.2-per-cent stake in CP last fall.
Monday's meeting marked the first public whistle stop of a proxy contest that has seen teams from Pershing and CP travel to major North American cities in recent weeks to campaign for shareholder support. Typically such sessions are held behind closed doors, but Mr. Ackman chose a public forum to introduce Mr. Harrison and a slate of five alternative directors in an apparent attempt to pressure the railway's board to come back to the table.
Mr. Ackman said he initially hoped to win the support of CP's board for Mr. Harrison's leadership "behind closed doors." He opted for a public proxy battle in January after the board rejected Mr. Harrison's candidacy as "detrimental" to the company's multiyear turnaround strategy.Activi
In a statement Monday, CP criticized the absence of "concrete" details in Mr. Harrison's turnaround plans. Despite the rebuke and the widening gulf between the two sides, Mr. Ackman said he is willing to give CP directors another opportunity to consider Mr. Harrison's leadership before the planned proxy vote in May.
"If we could resolve this tomorrow we would do it," he said.
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TOUTING THE TRACK RECORD
U.S. activist investor Bill Ackman presented Hunter Harrison to Canadian Pacific Railway Ltd. [[entity]]anadian Pacific Railway Ltd. [[/entity]]P-T shareholders Monday, saying his choice to become CP boss has the track record to drive much-needed improvements.
Here are highlights from and reaction to a wide-ranging presentation in Toronto by Mr. Ackman's Pershing Square Capital Management LP, which is pushing for Mr. Harrison to replace Fred Green as CP's chief executive officer.
Pershing Square
Experienced railroader: Mr. Harrison hit a "massive home run" when he guided Illinois Central Railroad Co. from 1993 to 1998, according to Pershing Square. Mr. Harrison's reputation grew after he joined Canadian National Railway Co. in 1998, and served as CN's CEO from 2003 to 2009. The "trifecta" would be achieved if Pershing Square wins a proxy fight against Calgary-based CP and succeeds in installing Mr. Harrison.
Operating ratio: Mr. Ackman criticized CP for being the least efficient among North America's Big Six railways. He zeroed in on CP's operating cost-to-revenue ratio. A lower number is better, and CP's ratio last year was 81.3 per cent, compared with CN's industry-leading 63.5 per cent. Mr. Ackman says CP's 2008 acquisition of Dakota Minnesota & Eastern Railroad Corp. (DM&E) was a mistake and irresponsibly financed.
Fit for top CP job: Mr. Harrison is itching to return to work, more than two years after he retired from CN at the end of 2009. "I happen to love this business," he said, adding that he will buy a condo in Calgary if he becomes CP's CEO. "I love Calgary. It's a wonderful place," he said. Mr. Harrison, 67, also addressed concerns about his age, saying he spends five days a week with a personal trainer.
The $5-million bet: Mr. Harrison personally bought more than 68,000 CP shares on Friday for $5-million. Pershing Square argues that CP directors own a "tiny fraction" of the railway. Mr. Harrison doesn't even have the top CP post yet, but he still wrote a $5-million cheque to buy stock in the railway, Mr. Ackman said, noting that the former CN CEO is betting that Pershing Square's five "nominees for management change" will be elected as alternative CP directors.
Reaction
CP fires back: CP dismissed criticism from Pershing Square, which aims to reduce CP's operating ratio to 65 per cent by 2015, compared with CP's target of 70 per cent to 72 per cent for 2014. CP said its board believes the proxy fight aimed at changing management would cause "serious disruption" to the railway's business. "CP's multiyear plan has been verified and endorsed by the board to drive volume growth, increase productivity, expand the network and control costs," it said.
Vocal CP supporter: Ron Tepper, CEO at transport logistics firm Consolidated FastFrate Inc., said he supports CP and Mr. Green. In an interview, he cautioned that after decades as a CP customer, FastFrate will be forced to review its relationship with CP if Mr. Green leaves. Mr. Tepper would consider moving some of FastFrate's $50-million-a-year in business at CP to other freight carriers, notably CN. Mr. Tepper said CP has a solid safety record, and he worries that in the push for greater productivity, shippers will suffer under a streamlined CP.
Persuasive Pershing: National Bank Financial analyst Cameron Doerksen said Mr. Harrison is a forceful personality who would trigger change in CP's corporate culture. The analyst said Mr. Ackman "presented a very strong case for change" by detailing CP's underperformance compared with CN and negative returns for CP shareholders in recent years. "We increasingly believe that CP's board will lose a proxy battle," Mr. Doerksen said in a research note.
Brent Jang and Jacquie McNish
Brent Jang