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Swimming in profits, Ackman to sell down CP stake

Pershing Square CEO Bill Ackman

Neil Wilder (photo), Don Rokicki (grooming)

After sparking a dramatic overhaul at Canadian Pacific Railway Ltd., activist investor Bill Ackman is taking some of his money off the table.

Mr. Ackman's Pershing Square Capital Management LP said Monday it plans to sell up to seven million shares in the railway on the open market, a process that will take six to 12 months. At Tuesday's closing price, those shares would be worth $950-million. The firm acquired most of its stake in late 2011 for a little more than $1-billion.

New York-based Pershing Square owned just over 24 million CP shares as of March 31, currently valued at about $3.25-billion, so the sale would represent more than a quarter of its holdings.

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Mr. Ackman said the firm is selling shares because CP takes up too much of its portfolio.

"Thanks to Hunter Harrison's and the CP team's performance over the last nearly one year, Canadian Pacific's share price has more than tripled since we first invested in CP," he said in a statement.

"As a result, our stake in CP has grown to approximately 26 per cent of the combined assets of our funds. Given that increased concentration, portfolio management considerations have driven our decision to trim our holdings. Even after these sales, we expect to remain CP's largest shareholder and for CP to remain one of

our largest investments."

Pershing Square currently owns about 14 per cent of all CP shares outstanding.

After the sale, CP will make up less than 20 per cent of Pershing Square's holdings.

Mr. Ackman and one of his colleagues at Pershing Square, Paul Hilal, will continue to sit on CP's board.

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The stock sales, which will begin on or after June 10, will be limited to ensure that amounts sold won't top 10 per cent of the combined volume on the New York and Toronto exchanges on any given day.

Canadian Pacific would not comment on the sale. "This is an investment decision made by Pershing Square. We will not comment on shareholder activity within our stock," a CP spokesperson said. Shares of CP dipped about 2 per cent in after-hours trading after Pershing's planned stock sale was announced.

Last year, Mr. Ackman and Pershing Square won an acrimonious battle to grab control of the railway's board and oust former chief executive officer Fred Green. They then installed former Canadian National Railway Co. CEO Hunter Harrison as the company's new chief executive officer.

After he took over, Mr. Harrison began the process of slashing staff, cutting rail yards, and speeding up the company's trains. In April CP reported record quarterly revenue and a first-quarter profit of $217-million, 53 per cent higher than the year-earlier period.

CP stock has almost doubled in value in the past year alone.

Capital Markets analyst Walter Spracklin said he is not surprised at Mr. Ackman's move, because he didn't expect Pershing Square would hold on to its full position indefinitely.

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"The share-price run-up has been quite significant – as they point out, it has tripled in value – and represents a substantial portion of their own assets," Mr. Spracklin said.

He said the share sale would not likely change the way CP operates, its earnings profile, or its ability to grow. "This is just an investor selling to another investor."

Still, Mr. Spracklin added, "whenever you have the single biggest shareholder selling out......if [investors] see Pershing Square exiting, it might impact how other people are looking at the stock," particularly if they have a similar investing approach. "But from a fundamental perspective, nothing is changing about this company."

At the Canadian Pacific annual meeting held in Toronto a few weeks ago, Mr. Ackman exuded confidence, saying: "Our job was to getting Hunter in place. It's a great outcome for everyone. I couldn't be more happy."

He noted at the time that CP's strong share price was the biggest indication of the company's recent successes, as it continues to make widespread changes to its network.

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About the Authors
Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More

Guy Dixon is a feature writer for The Globe and Mail. More

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