Canadian Pacific hires CN operations chief as Harrison's second-in-command

Canadian Pacific has hired a senior executive away from rival Canadian National Railway to be its second-in-command and a likely successor to CEO Hunter Harrison, who came out of retirement last year to reform the underperforming CP.

Keith Creel will become president and chief operating officer starting on Tuesday. He had been an executive vice-president and the COO at Montreal-based Canadian National since 2010.

He was also previously at Burlington Northern Sante Fe, another of North America’s top-tier railways.

Harrison is widely credited with transforming Canadian National into what has become regarded as the most efficient of North America’s big six railways.

He was hired as CP’s CEO last summer following a bruising proxy fight led by activist investor Bill Ackman’s hedge fund, Pershing Square Capital Management. Ackman had hand-picked Harrison as the right man to turn around Canadian Pacific, which has lagged its peers.

Harrison said the Calgary-based railway (TSX:CP) will benefit from Creel’s strong leadership and operational expertise as it continues its “transformational journey to becoming the best railroad in North America.”

“I have worked with many talented operating people in this industry over the last four decades and Keith is by far one of the best young operating talents that I have ever seen,” Harrison said in a statement.

Creel, 45, obtained a marketing undergraduate degree from Jacksonville State University and has completed the advanced management program at Harvard Business School. He served with the U.S. army in the Persian Gulf War, stationed in Saudi Arabia.

Harrison, 68, has said he does not see his tenure lasting more than three or four years and that grooming a successor would be a priority. On a conference call to discuss the company’s fourth-quarter results last week, Harrison signalled the COO announcement would be coming shortly.

Canadian National (TSX:CNR) acknowledged Creel’s departure in a separate announcement and said it has resolved a legal dispute that arose after Harrison joined CP.

As part of the settlement, CP has agreed not to hire “certain CN employees” until Dec. 31, 2016. Other terms of the deal are confidential.

CN spokesman Mark Hallman declined to say if the deal reinstates almost $40 million in future pension and other benefit payments to Harrison that the railway cancelled last year as it accused him of breaking non-compete and other agreements he signed when he retired in 2009.

At the time, CN said Harrison’s restricted stock units are calculated to be worth more than $17.8 million and the value of his pension is approximately $20.6 million.

Ackman, whose New York-based fund bought a major stake in Canadian Pacific in 2011 to become its largest shareholder, had said CP would cover the amount Harrison loses in pension and benefits from CN.

CN said Monday that it has a “deep bench of executive talent” and would announce Creel’s replacement shortly.

“We wish Keith success in his new role and are pleased to turn the page with respect to the matter of CP’s hiring of CN’s former CEO, Hunter Harrison,” stated CN president and chief executive Claude Mongeau.

“The settlement arrived at today will allow CN and CP to focus on their respective agendas and create value for their customers and shareholders.”

Creel’s appointment did not come as a surprise to analysts.

Walter Spracklin, of RBC Capital Markets, said it’s likely Creel will be the next CEO, since he’s been named president and CP chief marketing officer Jane O’Hagan will report to him.

Spracklin said the legal settlement between the country’s two large railways is good for both companies because it eliminates a distraction for Harrison and reduced a further “poaching risk” for CN over the next while.

“The announcement is a positive for CP in that it gives a very clear sense of longevity to the CEO role at CP — and Mr. Creel’s strong qualifications and high calibre provides a further sense of comfort,” he added.

A negative would be the price CP paid to lure Creel away from CN and any potential financial implication from the legal settlement.

Desjardins Securities analyst Benoit Poirier agreed that Creel’s appointment had been expected by the market.

“Nonetheless, from a trading perspective, we would still expect a slight positive reaction in the shares, given we see the news as a potential indication of further significant changes to CP’s senior management team,” he wrote.

Harrison’s and Creel’s departures could have a positive impact of around $25 million on CN’s first quarter results, mostly from a pension settlement, Poirier added.

Neither analyst expects CN’s operations to be harmed by Creel’s exit. And both see the railway replacing Creel quickly, likely with Mike Cory, senior vice-president of the western region, or Jim Vena, head of the southern region.

“We have met both executives in the past and both have solid experience in the operations role — we would consider both to be very strong and capable candidates for the COO role at CN,” said Spracklin.

On the Toronto Stock Exchange, CP’s shares closed down $2.24 at $113.54 Monday, while CN’s shares were off 55 cents at $95.15.

Note to readers: This is a corrected story. An earlier version said Harrison is 67