Pershing Square gets CPPIB backing for change at Canadian Pacific

CALGARY – The activist investor looking to shake up the board of Canadian Pacific Railway Ltd. and oust its CEO has won another endorsement from a major Canadian pension fund.

Pershing Square Capital Management said the Canadian Pension Plan Investment Board — the investment arm of the public pension fund — has given its backing to the entire seven-member Pershing slate a week before the railway’s annual meeting in Calgary.

“We are grateful for the support of CPPIB, one of Canada’s largest and most respected pension investors,” Pershing Square CEO and founder Bill Ackman said in a release.

“Their support, along with the strong support we’ve received from others in recent weeks, makes it clear that our fellow shareholders are ready for change and believe in our goal of returning Canadian Pacific to its historic position as a leader in the industry.”

The Ontario Teachers’ Pension Plan said earlier this week that it too backs the dissident slate. Two proxy advisory firms and a credit rating agency have also voiced support for Pershing’s push for change.

CPPIB said it concluded that change is necessary at Canadian Pacific (TSX:CP) as operational and financial performance have led to lagging shareholder returns compared with the railway’s peers.

“Although CP appears to have made some recent progress towards improving its operations, we believe that Pershing’s proposals for change provide the greatest likelihood for long-term sustainable improvement,” it said.

“We believe that our vote for only the dissident nominees is the best way to ensure that these directors are elected and that constructive change occurs.”

Meanwhile, another CP investor, British Columbia Investment Management Corp., said Friday it isn’t choosing one slate of directors over another.

In a release, it said it supports four Pershing nominees to CP’s board: Ackman, Paul Haggis, Rebecca MacDonald and Stephen Tobias.

It’s voting for 10 of CP’s nominees including Ackman, who is being proposed by both sides, retired Suncor CEO Rick George, former cabinet minister John Manley and Ed Harris, who has been a senior manager at both CP and rival CN.

Among those not included are CEO Fred Green and chairman John Cleghorn.

“We agree that CP’s performance has not been satisfactory. We applaud the efforts of Pershing Square Capital Management, but don’t believe that a wholesale change of the board is required at this time,” said Bryan Thomson, vice-president of equity investments at BCIMC.

“We believe that the new board will undertake a complete evaluation of management and make the required changes.”

Pershing Square wants to replace Green with Hunter Harrison, the ex-boss of rival Canadian National Railway Co. (TSX:CNR).

Canadian Pacific argues such a move would jeopardize plans underway to improve the railroad and harm relationships with customers.

“We recommend that shareholders cast their votes in favour of continued value creation under the oversight of the best 16 individuals up for election and not to vote for the risk and disruption associated with giving Pershing Square seven seats on the board,” spokesman Ed Greenberg said in an emailed statement.

Much of the battle is centred on plans to lower the railway’s operating ratio, the percentage of revenues required to pay for operations and a key measure of performance in the industry.

CP has set a target to bring the ratio down from 80.1 per cent to 70 to 72 per cent for 2014, but Pershing says it can do better under Harrison’s leadership and achieve 65 per cent by 2015.

CP says no railway has been able to achieve as steep a drop as Pershing wants in so short a time and that doing so would likely mean massive spending cuts rather than investments for growth.

Even if CP did accede to Pershing’s demands in the coming days to avoid an embarrassing defeat at the meeting, Ackman said earlier this week that he would still like shareholders to have their say.

CP shares rose 45 cents to $73.38 on the Toronto Stock Exchange.