Customers-as-leverage strategy backfires for CP
One of Canadian Pacific Railway Ltd.’ s larger shareholders has stepped forward to voice concerns about management’s strategy of putting the customer in the middle of its ongoing proxy fight with an activist shareholder Bill Ackman.
Jonathan Popper, senior managing director at Manulife Asset Management Ltd., said he was concerned about management’s comments that some of its customers had come forth threatening to take their business elsewhere and had been seeking opt-out clauses and other guarantees in their contract in the event a management change were to occur.
CP has been in a dogged fight with activist Mr. Ackman’s Pershing Square Capital Management LP, which is seeking to replace the railway’s chief executive, Fred Green, with Hunter Harrison, former head of rival Canadian National Railway Co.
“It seems counterproductive that management is out there saying that customers are going to vote with their feet,” Mr. Popper said. “CP is a great company and has real assets and are moving the economy. I’m not so sure what long-term benefits these statements are having for CP as an entity.”
CP was forced to comment on the matter Tuesday after concerns were raised that it may in fact bend to pressure to insert these guarantees into existing agreements.
“A number of CP customers have expressed concerns about the risk and disruption that would occur should Hunter Harrison be installed as CEO of CP, as proposed by Pershing Square,” the company said in a statement. “CP confirms that it is not including change-in-management clauses in customer contracts.”
But Mr. Popper said Manulife Asset Management, which oversees a portfolio of roughly 1.6 million CP shares, has been building its position in the company since Pershing Square announced its intention to seek a management change at the railway.
“We definitely support change,” he said. “The last couple of years, from our point of view, could have been better. Given an opportunity to have a change is definitely a positive.”
He said he didn’t buy the argu-
ments that CP’S customers would flee the company if Mr. Harrison were to assume the helm at CP.
“Our understanding while [Mr. Harrison was] at CN both revenue and volume grew,” he said. “There’s sort of a disconnect from where we sit.”
Another large shareholder, who spoke to the Financial Post on the condition of anonymity, said they found the use of CP’S customers in the fight “very disappointing.”
“They think this is helping their cause but it is far from helping,” the shareholder said.
The shareholder said they were originally hoping for some sort of settlement in the dispute, but will now be voting for the Pershing’s slate of nominees for the board.
The proxy battle is headed to a shareholder vote on May 17 in Cal-
gary at the company’s annual meeting. There, shareholders will be asked to either vote for the company’s slate of 16 nominees (which includes Mr. Ackman), or Pershing Square’s slate, which consists of seven of its own nominees and is expected to be filled out with existing board members the hedge fund thinks it can work with.
CP chairman John Cleghorn once again encouraged shareholders to vote for the company’s slate of nominees, which he said will be presented on a white “universal” proxy that will contain all 16 CP nominees as well as those presented by Pershing Square.
“There is no need to use any other form of proxy regardless of how you propose to vote,” Mr. Cleghorn said in a letter to investors Tuesday.
Pershing Square is expected to have its own blue proxy ballot containing only its slate of nominees. It was originally expected to file its slate with regulators early this week, but that may now be pushed off until end of the week or early next week after the Easter holiday, those with knowledge of Pershing’s plan said.
Mr. Cleghorn maintained in the letter to shareholders that progress was being made on the company’s multiyear plan and that a management change was an “unwarranted risk.”
“The resulting disruption would undermine and delay CP’S ongoing initiatives to improve profitability,” he said in a letter to shareholders. “It is exactly the wrong thing to do at exactly the wrong time.”
Mr. Popper disagreed and said Manulife would be voting for Pershing’s slate.
“Yes, they do have a plan. But they’ve had other plans in their tenure both as management and boards approving the management’ s plan, and they haven’t met our expectations,” he said.