Pershing Square Capital Management, controlled by Bill Ackman, bought 12.2% of Canadian Pacific Railway Ltd. That stake is worth about $1.3 billion. Fred Green, CP's CEO, can't be a very happy man tonight.
Wow, you published this news before I saw it on Canadian web sites.
A 12.2% stake is huge in terms of CP's history. Their shares have always been very widely distributed in the UK, the US, and Canada.
I'm very curious to see what this outfit thinks it can bring to CP's operation. Once they realize they can't build a tunnel from Calgary to Vancouver, they may tire of their new investment.
I could go on about mistakes made back to the late 19th Century, but since financial types historical perspective reaches back almost through the last two fiscal quarters, I'm not sure what earth shaking changes they intend to make.
I will be watching with great curiosity and interest.
Bruce
So shovel the coal, let this rattler roll.
"A Train is a Place Going Somewhere" CP Rail Public Timetable
"O. S. Irricana"
. . . __ . ______
I fear for companies every time I hear of a 'money firm' buying a signifigant stake in them. Money firms want to make money - not run ongoing businesses. Loot the cash and leave the shell.
This could be different ..... but!
Never too old to have a happy childhood!
BaltACD I fear for companies every time I hear of a 'money firm' buying a signifigant stake in them. Money firms want to make money - not run ongoing businesses. Loot the cash and leave the shell. This could be different ..... but!
Well he will have a harder time looting and running with a railway company but, Bill Ackman isn't one to sit back like Warren Buffet.
I first saw the news here;
Pershing Square acquires stake in CP
beaulieu BaltACD: I fear for companies every time I hear of a 'money firm' buying a signifigant stake in them. Money firms want to make money - not run ongoing businesses. Loot the cash and leave the shell. This could be different ..... but! Well he will have a harder time looting and running with a railway company but, Bill Ackman isn't one to sit back like Warren Buffet. I first saw the news here; Pershing Square acquires stake in CP
BaltACD: I fear for companies every time I hear of a 'money firm' buying a signifigant stake in them. Money firms want to make money - not run ongoing businesses. Loot the cash and leave the shell. This could be different ..... but!
Hedge funds buying into a operating entity with their avowed aim of 'increased shareholder return' scares me for the continued operational health of that entity. Hedge funds, by an large, are only concerned with how much money they can extract form the entity and how soon they can do it.
It is amazing how little coverage this deal is receiving in the Canadian media. Apparently, the reporters do not realize how few times in CP's history anyone has amassed over 10% of the shares. I guess 12.2% doesn't seem to register with them. And an American investor at that.
The one story I did find in the Globe and Mail stated that Pershing Square had taken positions in Sears Canada and Canadian Tire. I don't know any employees of these companies, but as a customer of both I have no complaints.
BaltACD:
This sort of has similarities to the probems that CSX experienced with the buy-in of the Children's Investment Master Fund move on the CSX Corp.
"Children's Fund Lectures CSX"
http://www.forbes.com/2007/10/16/csx-childrens-fund-markets-equity-
csx_af_1016markets20.html
Like many of these cases it wound up being adjudicated in the courts:
A couple of pertinent links:
http://blogs.wsj.com/law/2008/06/12/judge-kaplan-reprimands-hedge-funds-in-takeover-battle-with-csx/
and finally: http://www.internationallawoffice.com/newsletters/detail.aspx?g=c7107bc3-2826-42c6-9b66-a87933ece1b4
http://www.bloomberg.com/news/2011-10-31/canadian-pacific-jumps-after-ackman-s-pershing-square-buys-minority-stake.html?cmpid=yhoo
BaltACD http://www.bloomberg.com/news/2011-10-31/canadian-pacific-jumps-after-ackman-s-pershing-square-buys-minority-stake.html?cmpid=yhoo
and a quote from the link provided by Baltacd:
"FTL:"...Canadian Pacific Railway Ltd. (CP) may face pressure to sell the company after William Ackman’s Pershing Square Capital Management LP bought a 12.2 percent stake and said it expects to hold talks with management.
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), owner of Burlington Northern Santa Fe, may be a buyer, Peter Nesvold, a Jefferies & Co. analyst, said in a note today. RBC Capital Markets’ Walter Spracklin said an acquirer such as a Canadian pension fund would be more likely than another railroad.."
This is the direction I had speculated this stock purchase in CPR might be heading with thecomment about the Children's Fund envolvement at CSX..
Will CPR acquiesce or try and fight it ( utilize the financial 'Poison Pill' strategy. An American investor making a 'run' at a Canadian Icon? [ The reverse situation of the CN buy out of the IC.]
It will be of interest here how this will finally play out.
Interesting, what does BNSF gain by purchasing CP? Access to Canadian markets sure, but I can't imagine that the transcon would be of any interest to them and certainly DME and the potential route to the powder river is not compelling.
I would think that the STB assuming they were doing their job would have to at least think very hard about this were it to be suggested.
[quote user="YoHo1975"]
[/quote]
The STB's reach doesn't extend into Canada. They would have no say on the sale of a Canadian company to Pershing Square, or any other company. However if operations of the US subsidiaries Soo Line, D&H, or DM&E, were to materially change, or they were sold in whole or in part, the STB would come into play.
Here is a link from The Globe and Mail:
http://www.theglobeandmail.com/globe-investor/cp-open-to-talks-with-us-activist-hedge-fund/article2219756/
Well, I was referring to the BNSF interest, so the STB certainly would come into play. Obviously as would Canada's equivalent. The route redundancy is entirely in the midwest though.
I'm sure BNSF could see value in the D&H, but the SOO and DME far less so.
The hedge fund may well be planning relieve CP of its excess cash but it would be interesting to see how Canadian securities laws will affect this.
From where I sit (the Inland Northwest), Buffett's interest in gaining control of CP would be all about import/export business. Over the past year, a large amount of Powder River Basin coal has been heading to Canadian ports served by CP or CN. With CP in their pockets, Buffett and Co. could maximize rail line-haul share of coal moving to Roberts Bank via either Sweetgrass, MT, or Blaine/Sumas, WA. (OK, so some of that coal logs mileage on MRL too.) Bottom line: Canadian ports are closer to Asia than American ports, and Buffett knows it.
What's not known is whether a CP acquisition would bring and end to BNSF handing off coal to CN, or affect CP's handing off of potash, grain, and merchandise to UP at Eastport, Idaho.
Bruce Kelly From where I sit (the Inland Northwest), Buffett's interest in gaining control of CP would be all about import/export business. Over the past year, a large amount of Powder River Basin coal has been heading to Canadian ports served by CP or CN. With CP in their pockets, Buffett and Co. could maximize rail line-haul share of coal moving to Roberts Bank via either Sweetgrass, MT, or Blaine/Sumas, WA. (OK, so some of that coal logs mileage on MRL too.) Bottom line: Canadian ports are closer to Asia than American ports, and Buffett knows it. What's not known is whether a CP acquisition would bring and end to BNSF handing off coal to CN, or affect CP's handing off of potash, grain, and merchandise to UP at Eastport, Idaho.
You can be sure that US Midwest Ag interests including several states will have a lot to say because of the importance of Soo Line and DM&E versus the other Class I railroads.
If Berkshire Hathaway has an interest in CP then why don't THEY buy it? Warren Buffett is reputedly the master of recognizing an undervalued stock, yet he hasn't made a move on CP. It is Pershing Square that has thus far purchased 12.2%... Has Buffett made any statements to sugggest BH might be interested in CP? Is there a link between Pershing Square and Buffett?
Some of that Soo territory grain heads north into Canada, west to Eastport, Idaho, and back into the U.S. where UP brings it right behind my house and on over to Northwest export docks. A BNSF/CP merger would either ignore this traffic completely, or could siphon it north and then west to Vancouver, BC.
Meanwhile, way over in the Northeast, if CP still has its D&H running rights between Buffalo and Binghamton, imagine what a certain short line could win back in the way of imported stack traffic if Buffett & Co. want a direct route for merchandise from Canadian ports to the NJ/NY metro area. Glory days for Sparta Mountain again? Stay tuned...
The STB would force divestiture of the Soo/DM&E if the CP and BNSF would merge. And the US grain would never move via Vancouver, BC. North Dakota and Minnesota Farmers and Ag companies saw what happened when Montana lost the MILW competition to BNSF. It will happen over their dead bodies in North Dakota and Minnesota.
Motley Fool
http://www.fool.com/investing/general/2011/11/01/railroad-stocks-bill-ackman-thinks-theyre-underval.aspx
Back about 10 years ago CN and BNSF proposed a merger and it was called off. One of the provisions of the merger, if I recall correctly was that the headquarters of a Canadian company which entered into a merger HAD to remain in Canada.
Is that an accurate memory recall? If so is that still a law in Canada? If so, would that have any effect on a BNSF merger of CP? Would it even matter?This was also discussed today on Bloomberg radio...however I received a phone call and missed the discussion. If anyone else heard it, perhaps you can summarize the discussion.
Ed
BaltACD Motley Fool http://www.fool.com/investing/general/2011/11/01/railroad-stocks-bill-ackman-thinks-theyre-underval.aspx
Thanks to Chris / CopCarSS for my avatar.
Having followed The Children's Fund foray into CSX - the impression of the ideas that TCF were trying to push down CSX's throat was that they had been formulated in a Holiday Inn after viewing at train running under a Christmas tree.
Railroads have a high degree of fixed plant investment in their cost structure and have all the agility of the QE 2 in moving about the financial oceans. The hedge fund mentality which is accustomed to moving millions and billions of dollars about with the click of a mouse, finds dealing with fixed railroad investment something they are ill prepared to deal with in a rational constructive manner, especially for the railroad to continue to operate safely and profitably.
The people running today's class I railroads are not dumb or incompetent. If changes that hedge funds think are required were a profitable 'for the railroad' as the funds think .... they you already have been implemented.
Murphy Siding BaltACD: Motley Fool http://www.fool.com/investing/general/2011/11/01/railroad-stocks-bill-ackman-thinks-theyre-underval.aspx From the article:"The key questions on the minds of investors will be to what extent Pershing Square will be able to trigger significant change," says Walter Spracklin of RBC Capital Markets in Toronto" I'm not an investor, but I have similar thoughts. What magic is the new investment group going to pull out of air, that makes everything more profitable? And if it's that easy, why didn't the railroad guys aleady do it?
BaltACD: Motley Fool http://www.fool.com/investing/general/2011/11/01/railroad-stocks-bill-ackman-thinks-theyre-underval.aspx
They may not see any magic...just room for improvement on the management side. CP's numbers aren't as good as its competitors, and the hedge fund people might have concluded (rightly or wrongly) that THAT difference is attributable to the difference in the quality of the management when compared with its direct competitor CN or the industry at large. CP is fortunate to have a relatively simple network consisting of long hauls and serving large markets. Yet it lags behind other carriers like NS who have a much more complex network, shorter hauls, and a more dispersed service area. In all probability Ackman looked at the big picture and picked the industry laggard i.e. the one road that could be improved upon by making changes in the management...no magic required. Moreover, there would be no point in buying something that can't be improved upon and sold at a profit.
[quote user="MP173"]
Part of the deal when CN was privitized was that the headquarters would stay in Canada, I think it has to be Montreal. So when the BNSF-CN merger was proposed the headquarters was to be Montreal.
It is not a law that headquarters have to be in Canada.
Maybe I'm being a little naive here, but I wouldn't yet completely dismiss the possibility that this hedge-fund investment in CP was made for one of the 3 reasons mentioned in the "Motley Fool" article linked above - to participate in the longer-term increase in value of the company. Rails are a good market sector right now - better than most - and buying CP's shares sure beats buying more European distressed Euro debt as other hedge funds have been doing (compare with yesterday's collapse of MF Global Holdings Ltd. . . . ).
But in the event this is a typical corporate 'raid' to loot CP's cash holdings - Hah ! Too late, that horse is already out of the barn ! Following are some details:
CP's "Cash & Short Term Investments" are currently (Sept. 30, 2011) about CDN$97 million per Google Finance's "Balance Sheet" webpage (at: http://www.google.com/finance?q=NYSE%3ACP&fstype=ii&hl=en# ), down CDN$263.6 million = 73% from a recent high of CDN$360.6 million 9 months ago on Dec. 31, 2010, CDN$310.5 million 6 months ago on March 31, 2011, and CDN$267.8 million 3 months ago on June 30, 2011. The "Cash Flow" webpage shows why and how - over the last 3 months, every dollar generated by "Operating Activities" and then about 5% more was used for "Capital Expenditures". In addition, CP has used another CDN$272.7 million of cash to pay dividends, and pay off debt in nearly equal amounts. So there's not much cash left to loot right now.
(Ed/ MP173 and anyone else here who is financially oriented, please feel free to add/ correct/ comment on the above as you see fit.)
Here's some free advice for CP's management - taken from ConRail's/ L. Stanley Crane's 'playbook' in fending off attempted take-overs by NS for similar purposes in the mid-1980's - though judging from the above they don't need it: Put as much of that surplus cash as quickly as possible into useful assets where it can't be easily recovered - the physical plant, and particularly the track structure. Buy and install as much welded rail, concrete ties, and ballast as possible, rebuild grade crossings like mad, and tamp and surface track until the inevitable cold weather forces a halt to those activities for the season. Over the winter, invest in PTC infrastructure. So that when Pershing Square shows up and wants the money, you can pull out your pants pockets, turn them inside out, and show that there's even less $ left !
Best of luck to you guys (and gals) !
- Paul North.
7:00 AM EDST Tues. 02 Nov. 2011 EDIT/ P.S.: More pragmatically - after a little more thought - the quarterly dividend payments of CDN$143 million are about 1/5 of the Capital Expenditures of about CDN$700 million. Diverting even a small amount of that CapEx spend to dividends instead on a sustained basis would provide a big boost to those amounts, and hence the stock price. I'll stick my neck out a little bit and predict that's the subject which Pershing Square's Bill Ackman will be discussing with CP's management. - PDN.
Some lower level Canadian CP management types, have characterized Calgary top level management as more hide bound than most. I was told that Ed Harris, formerly of CN under EHH, who was brought out of retirement to improve CP's operations as EVP-O, quit after not receiving backing from the CEO to make significant changes. Whether this was true, I can't say. But I do know that morale amongst lower level Employees isn't very high. Also local carload customers have started to look for ways to avoid using CP as Car Dwell times and Velocity are not very good compared to other Class Is.
beaulieu Some lower level Canadian CP management types, have characterized Calgary top level management as more hide bound than most. I was told that Ed Harris, formerly of CN under EHH, who was brought out of retirement to improve CP's operations as EVP-O, quit after not receiving backing from the CEO to make significant changes. Whether this was true, I can't say. But I do know that morale amongst lower level Employees isn't very high. Also local carload customers have started to look for ways to avoid using CP as Car Dwell times and Velocity are not very good compared to other Class Is.
Although I retired a few years back, from acquaintances still working I have had more or less the same impression. Except the term "hide bound" may not be the most suitable. The way I hear it, many in the more senior management levels seem to be busy playing management games that do not help the basic business they purport to be managing. The result is, as you say, terrible morale in those closer to reality. Some are hopeful that this could trigger a much needed change for the better.
At this point, it might be interesting to get some input from some Posters here; who are connected to CPR or work for them. I think we have a couple of folks that fall into that category around here from time to time?
Fred Frailey has written an article about this over in the blog section. Here is the link:
http://cs.trains.com/TRCCS/blogs/fred-frailey/archive/2011/11/02/canadian-pacific-in-the-cross-hairs.aspx
Over the past week I have come to agree with Frailey's passive investment theory. Even activist investors need to put some of their funds into a safer investment, especially as I think there is another recession around the corner.
Canadian Pacific, if nothing else has always been a safe investment. When the current Beaver Shield logo was designed, the year 1881 was pointedly put on it for a reason. CP is the only North American Class 1 railway not to have gone through bankruptcy since that time. And it only ever missed paying a dividend in 1932. A record of staid stability is not the worst thing in today's turbulent economic times.
I am sorry to hear of some of the comments made by John (cx500) here and on other forums.
AgentKid Fred Frailey has written an article about this over in the blog section. Here is the link: http://cs.trains.com/TRCCS/blogs/fred-frailey/archive/2011/11/02/canadian-pacific-in-the-cross-hairs.aspx Over the past week I have come to agree with Frailey's passive investment theory. Even activist investors need to put some of their funds into a safer investment, especially as I think there is another recession around the corner. Canadian Pacific, if nothing else has always been a safe investment. When the current Beaver Shield logo was designed, the year 1881 was pointedly put on it for a reason. CP is the only North American Class 1 railway not to have gone through bankruptcy since that time. And it only ever missed paying a dividend in 1932. A record of staid stability is not the worst thing in today's turbulent economic times. I am sorry to hear of some of the comments made by John (cx500) here and on other forums. Bruce
I had posted the following request earlier on this Thread:
I know very little about the CPR and its current operations; other than to know that in the last year and this past summer they have taken a series of major hits in the weather and operations areas. But those difficult elements are part of their heritage, one cannot think of the Canadian Rockies and not visualize severe weather conditions, and on the plains, it is either 'feast or famine' weather wise. Conditions and situations that happen so often and regularly, a proactive management should be able to react to without thinking. Just go handle it! So the problems seem to be at that level. The Fred Frailey Blog seems to indicate an upper level of the management structure that has become moribund and complacent . Communications up,and down the corporate structure have quit functioning. Operating ratio is nothing to brag on. Stocks seem to be stagnant. He has high praise for the intuitive Bill Ackman and his sense of a company he can create value in.
The Posters who have responded to the Frailey Blog seem to agree with his assessment of what has gone off the rails at CPR . The most recent response from (JBXing) comes across as pretty knowledgeable in things CPR. It would seem that a shakeup is in the cards for the management at CPR from top to bottom, based on the comments. I think the one thing that is not going to happen is a cross boarder merger any time soon.
Regulators on both sides of the boarder will have their hands on throats, on both sides in that matter.
It will be interesting to watch, and see how it turns out. One thing I think for sure it will shake the US and Canadian rail scenes.
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