Is a peace treaty at CP in the wings?

Pressure is mounting on the warring parties battling over the leadership of Canadian Pacific to negotiate a truce prior to the scheduled May 17 annual meeting and shareholder vote for directors. That pressure is greatest on the board of directors of CP, who favor retaining Fred Green as the railroad’s chief executive officer. But also feeling the heat is William Ackman, the activist investor whose New York hedge fund, Pershing Square Capital Management, owns 14.2 percent of CP shares and insists on tossing Green out of office.

Toronto’s Glove and Mail reported May 2 that large shareholders are telling CP directors they should seek to reach agreement with Ackman before a shareholder vote for 16 directorships that could possibly deliver a humiliating defeat to the incumbents, who include some of Canada’s leading business luminaries. Pershing is proposing a slate of seven directors, not enough to take control but (if all are elected) probably sufficient to force Green to resign. The newspaper reports that CP directors are willing to give Ackman four of the seven seats he seeks in return for not insisting upon installing retired Canadian National president Hunter Harrison at the railroad’s helm in place of Green.

Ackman told the Globe and Mail that he is willing to search for a replacement for Green other than his favored candidate, Harrison. But he insists on going through with the shareholder vote two weeks from now, saying shareholders have a right to be heard. Ackman is also believed to be recruiting a slate of executives to assume the top operating, marketing, and finance jobs should Green by ousted.

While every survey of institutional shareholders indicates that Ackman’s slate is likely to prevail in whole or in part, there are risks to spurning peace talks. For instance, about 45 percent of CP shares are held by “retail” or non-institutional investors, and nobody has a clue how they will vote.  It is possible that most are Canadians who would tend to be supportive of the present CP board and Green as well. And if only three or four of Ackman’s seven candidates win, will that be enough to persuade the majority of directors that shareholders really do want a change of management?

Moreover, the Teamsters Canada Rail Conference is mounting its own challenge to Ackman and Harrison. Without a contract, the Teamsters, who bargain for CP engineers, conductors, and rail traffic controllers (dispatchers), have scheduled a strike vote just days after the shareholder meeting.The union is known to resent Harrison at CN for training management employees as strike breakers, something CP has not done. Unprepared to operate many trains during a strike, Harrison if installed as president would either have to accept contract terms offered by the unions or risk losing millions of dollars a day due to a shutdown. Presumably, were Green to stay in power, the unions could postpone calling a strike.

So look for a lot of public posturing the next two weeks. But don’t be surprised if behind the scenes, the two sides get together and work out a truce. — Fred W. Frailey