Bill Ackman of Pershing Square Capital Management has big plans for his newest investment: Canadian Pacific Railway.
The activist investor, who publicized a nearly 14% stake in the Canadian transportation company last October, has declared he will be waging a proxy fight with the firm to oust current CEO Fred Green with his own choice, former Canadian National Railroad CEO Hunter Harrison, according to Bloomberg.
A proxy battle will allow shareholders to vote on a change in management of the company they have bought a stake in, and is also a method activist investors use to bring about the change they want, as they can convince shareholders to vote in their interests.
The proxy fight declaration comes after Canadian Pacific released a letter to shareholders today rejecting Harrinson as a possible CEO replacement. But it also follows a week-long period of publicized back-and-forth letters between Ackman and Canadian Pacific, each accusing the other of perpetuating falsehoods.
It all started when someone leaked to Canadian paper The Globe and Mail that Pershing Square was planning to install Harrison in the CEO position at Canadian Pacific and that the company’s Board had expressed interest in meeting with Harrison. The transportation company has seen a year of decreasing profits and an inflated operation ratio, according to The Globe and Mail.
Canadian Pacific threw the first punch —releasing a letter to Ackman saying that it was “disappointing and highly inappropriate” that Pershing Square made inaccurate comments to the media (essentially accusing the firm of leaking its plans) and that no one on the Board had shown interest in meeting Harrison.
Well, hell hath no fury like Bill Ackman scorned. He countered with his own letter —stating firmly that no one at Pershing has spoken to the media. [via WSJ] In addition, he detailed a phone call that the Board Chair John Cleghorn made to him asking for a meeting with Harrison, pointing the liar marker towards Canadian Pacific.
That resulted in a letter today from Canadian Pacific to its shareholders decrying Ackman’s plan, with a firm backing for current CEO Green and blatant rejection of the Harrison proposal. Ackman’s proxy battle announcement swiftly followed.
Further complicating matters is the fact that Canadian Pacific has repeatedly asked Ackman to join their board of directors (the offer still stands) —yet Ackman has publicized that the offer to join the board comes with a “standstill agreement” which strips him of basic shareholder rights, criticising it as a ploy to stop his activist advances since no other board member has been subjected to that catch.
Ackman is known for taking up majority stakes in undervalued companies and then turning around management to increase the share value. When Pershing Square’s 14% stake in Canadian Pacific was revealed last October, the company’s stock jumped 5%. Today, shares had fallen to $68.08 from an open of $68.78 around 1 p.m. — when Bloomberg reported Ackman’s declaration of a proxy battle to install Harrington as CEO. Since then, it has now jumped to trading around $68.99. Seems like investors are in Ackman’s favour.
Here’s a look at the stock movement:
Photo: Google Finance