Toronto Star

CN Rail is under increased pressure from activist investor TCI Fund Management to make boardroom changes as the result of its failed Kansas Southern bid.


Activist investor TCI Fund Management Ltd. has stepped up its push for boardroom changes at Canadian National Railway Co. after the company’s efforts to take over a U.S. railway hit a wall.

British-based TCI said Monday it intends to ask for a special meeting of CN Rail shareholde­rs for the purpose of “refreshing” the railway’s board by adding four members that it has nominated.

The fund, which is also the largest shareholde­r of Canadian Pacific Railway Ltd., also said it has proposed Jim Vena, former chief operating officer at CN, as a potential replacemen­t to current CEO Jean-Jacques Ruest.

The move comes a day after Kansas City Southern said that a takeover bid from CP looks to be the superior proposal, after CN Rail failed to secure a key regulatory approval from the U.S. Surface Transporta­tion Board. KCS says it plans to terminate its deal with CN and sign a definitive agreement with CP Rail, which has made a proposal valued at about $31 billion (U.S.) including debt.

CP Rail chief executive Keith Creel said the railway stands ready to seal the deal with KCS.

“We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnershi­p.”

TCI managing partner Chris Hohn said the fund launched the proxy fight after CN Rail’s bid for KCS showed a “basic misunderst­anding of the railroad industry.”

“The board consistent­ly misjudged the STB and displayed flawed decision-making, committing billions of dollars to an ill-conceived pursuit of an unattainab­le asset. CN should focus on getting better rather than bigger.”

Hohn comments come as CN deliberate­s on its next move. The Montreal-based railway has five business days to make changes to its offer to win back the support of the KCS board.

CN Rail said in a release Monday that it acknowledg­es TCI’s announceme­nt but that it would hold further comment until it receives and reviews a formal requisitio­n from the fund. The railway did not comment on the latest KCS decision.

CN’s offer is valued at about $33.6 billion including debt, but at the end of August, the U.S. regulator denied the company’s use of a voting trust for the bid, saying it would be bad for competitio­n.

CP, which is smaller and has a more limited presence in the U.S., already has approval for a voting trust.

The trust would allow KCS shareholde­rs to be paid before the U.S. regulator completes its review of the proposed takeover.

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