CN Rail says it will buy back $5 billion worth of stock next year and streamline management in an attempt to hold off a shareholder revolt.

Shareholder is trying to oust board members after year of declines

Canadian National Railway Co. said it plans to cut spending, streamline management and buy back $5 billion of stock next year as its tries to ward off a shareholder revolt started by TCI Fund Management Ltd.

The measures will allow the railway to increase operating earnings and profit per share by 20 per cent next year, Canadian National said in a statement Friday. It’s looking to improve its operating ratio, an industry measure of efficiency in which a lower number is better, to 57 per cent next year. It was 61.6 per cent in the second quarter.

The railroad will lead an industry shift to become more customer-oriented just as it pioneered an efficiency strategy that most peers have since adopted, chief executive officer Jean-Jacques Ruest said on a conference call with analysts.

The Montreal-based railroad faces a proxy fight from Chris Hohn’s TCI, which owns more than five per cent of the company and is unhappy about its performance and its decision to pursue a $30-billion takeover of Kansas City Southern.

The deal collapsed after U.S. regulators rejected a key provision that would have allowed Kansas City Southern shareholders to get paid before the merger goes through full regulatory review.

The effort to buy the U.S. railroad helped Canadian National identify opportunities to boost profit, Ruest said Friday.

“We fully appreciate that our bid for KCS may not have been in CP’s interest, but it has absolutely served CN’s interest despite the disappointing outcome,” Ruest said.

The company will balance its “customer-service culture” with improving operating income and not just increasing revenue, he added.

TCI filed documents Thursday to call a shareholder meeting. It is trying to oust four members of the board and

Ruest, replacing him with former Canadian National executive Jim Vena. TCI noted that the railroad’s operating ratio had worsened to 61.9 per cent last year from 55.9 per cent in 2016, the same year Vena left the company as COO.

The fund management firm also highlighted that Canadian National is the only large North American railroad that posted a decline in operating income from 2016 through 2020, while rival Canadian Pacific led the pack with an 8.3 per cent gain.