Rail merger could improve efficiency, says CP director
Bill Ackman and CEO of competitor CSX refuse comment on reported takeover bid
TORONTO — The war of words over a takeover offer that no one will acknowledge publicly and may never get off the ground continued on Thursday, with Canadian Pacific Railway Ltd. director Bill Ackman saying rail consolidation could “meaningfully” improve industry efficiency.
Ackman’s comments came on the heels of a Wall Street Journal report that CP approached competitor CSX Corp. with a merger proposal last week but was rebuffed, and directly contradict the view of CSX’s chief executive, Michael Ward, who said Wednesday that consolidation could result in “severe service disruptions.”
However, both Ackman and Ward refused to speak about the reported bid directly.
“I don’t want to be in a position of confirming or denying rumours. That’s not my job as director,” Ackman told reporters on the sidelines of an Ontario Securities Commission conference in Toronto.
However, he added that certain rail combinations could be “procompetitive.”
“If you take the management of CP, which has done an incredible job, and you combine it with another rail where they can get the benefit of the combined management teams addressing problems and that railroad becomes more efficient … I think you know the regulators would look at it,” he said.
“I don’t want to be in a position of confirming or denying rumours.” BILL ACKMAN, DIRECTOR, CP RAILWAY LTD.
Several industry analysts have said any tie-up between CP and CSX would face intense regulatory scrutiny and may not get approval from the U.S. Surface Transportation Board, which requires that rail mergers enhance competition as opposed to merely preserving it.
According to Ackman, CP CEO Hunter Harrison believes consolidation can “meaningfully address the congestion problems” in places like Chicago, where huge volumes create a major choke point for North American rail traffic.
Ackman is the founder of Pershing Square Capital Management, a high-profile hedge fund, and is best known for his investor activism.
He initiated the 2011 proxy battle at CP that eventually resulted in the ouster of CEO Fred Green in favour of rail veteran Hunter Harrison, and is currently embroiled in Valeant Pharmaceuticals International Inc.’s hostile bid for Allergan Inc.
When asked if CP would be willing to go hostile and take an offer directly to CSX shareholders, Ackman said that he “can never comment on the sentiment of the board.”
But he did say other railroads would do well to use CP’s techniques.
“I’m incredibly proud of the team at CP,” he said. “(They’ve done) an amazing job and if you can apply some of their precision scheduling railroad techniques to other railroads, you’d have a much more efficient system.”
Earlier this month, CP announced that it had met its 2016 financial goals two years early and rolled out an ambitious new plan that expects earnings per share to double by 2018 through a renewed focus on revenue growth.
Under Harrison, CP has lowered its operating ratio — a key measure of operating efficiency at railroads, where a lower number is better — to the mid-60s from the low-80s. Since Harrison took the helm in mid-2012, the company’s stock has tripled.