From: William A. Ackman

Sent: Tuesday, January 03, 2012 01:30 PMbill ackman image

To: John Cleghorn

Subject: Your letter


Shortly, I will be sending a letter in response to yours which I will publicize shortly thereafter. I would have preferred not to have done so, but in light of your letter I had to set the record straight.

Hopefully, we can move on from public letters to return to a one-on-one dialogue. To that end, I would like to speak to you at your convenience sometime this afternoon if that works for you.



The following exchange of e-mails began the morning after that message was sent.

From: William A. Ackman

Sent: Wednesday, January 04, 2012 7:22 AM

To: John Cleghorn

Subject: War and Peace


I woke up early this morning thinking about my favorite Canadian railroad and it is causing me to become more interested in military history. We have had what the historians would likely call a border skirmish. It is not clear who fired the first shot, but a few people have been hurt, some egos have been bruised, and the arms dealers (the media) are calling for and attempting to gin up a fight. They of course sell more papers if a fight occurs so their motives are clear.

When a border skirmish takes place, sometimes it leads to full out war and other times, things die down, borders are redrawn and peace can remain in both lands.

The choices from here as I see them are (1) representatives from our side and your side sit down and work this out promptly. Working it out, in my view, is the quick addition to the board of two representatives from our side, and Hunter’s hiring as CEO. The second alternative is that we will be forced to launch a proxy contest for the upcoming annual meeting where we will seek to replace a greater number of the existing directors with extremely highly regarded business executives who share our belief that management and board change is necessary at CP.

In the proxy contest, as a first step, we will take the largest public hall you have available in Toronto and will make a presentation to shareholders and the public (which will be simulcast on the Internet) about management and board failure over the last 10 years at CP. We will examine management’s and the board’s track record and history in CP and in previous career experiences. Among other issues, we will go into detail on the real reasons behind Ed Harris’s departure and compare it with what the company said publicly at the time. While we will only do this in the most high-minded manner possible – we will not make any ad hominem attacks on anyone – the process is inherently an uncomfortable one for all parties involved. It is all also expensive in time and money and a distraction for management, particularly at a time when their focus is needed on operations (most importantly, when it is snowing or flooding).

This proxy contest will not go well for the board and Fred. The track record is very poor, shareholders are disgruntled, and we are offering an alternative with a legendary reputation. An analyst at Morgan Stanley, your advisor in this matter, is now writing of a “super-bull” case if Hunter is hired. I have attached a copy of the report to this email. We will win the election likely by a landslide vote. Don’t rely on my opinion on this, just ask your proxy advisors.

Based on yesterday and my not receiving a return call from you, the probability of war occurring has gone up meaningfully. War is not my preference and it has been extremely rare for us. We have had only two proxy contests in 25 or so active engagements with public companies over the last eight years.

War is also not inevitable.

I think the failures so far have been largely ones of communication. As a result, I think it is useful to review why we are where we are. When we first met, I explained to you the importance of resolving things quickly and getting on the same page as quickly as possible. We were delighted with the way our first meeting ended. After pulling me off the plane, you explained to me that “Fred agrees with the logic of your presentation” and clearly implied that he was prepared to step down. You explained that his principal motive for allowing Hunter to replace him was to get back at Canadian National because he hates them so much. You then said, “Welcome to Canadian Pacific!” and shook my hand in a warm embrace. You told me that you had a board call set for the following day and that you would get back to me no later than Friday morning, but probably earlier on Thursday.

We viewed the meeting positively, largely because often the biggest barrier to replacing a failed CEO is the CEO himself. With Fred apparently on board with the plan and with your welcome, I believed we were well on our way.

Things began to go awry when you did not call me on Thursday or Friday. When we finally spoke on Saturday as a result of my reaching out to you, things apparently had changed meaningfully since our Wednesday meeting. On the call, you asked me to arrange a meeting with Hunter that Kathryn McQuade would attend. When I explained that I thought it was inappropriate for a CEO candidate to meet with the CFO of the company rather than the full board who should be doing the job of hiring the CEO, you told me that the board did not have a lot of railroad industry expertise and that Kathryn could help the board evaluate Hunter’s plan for turning around CP. I then explained that even if the board were willing to meet with Hunter we did not believe he could do so in light of constraints in his non-compete arrangement. You then asked me to have our counsel speak with yours about the non-compete agreement.

In light of the necessary delay in meeting Hunter, I then suggested that the best approach would be to get Paul Hilal and myself on the board right away so we could assist the board in the management decision. You expressed surprise that we were interested in board seats. When I reminded you that we had requested “a couple of board seats” at our Wednesday meeting, you said that you had no recollection of that request. When I reminded you that at the meeting, I had given the JC Penney analogy where two of our representatives were invited to join the board without being required to sign a standstill, and we then worked with the board in private to recruit a new CEO, you seemed to remember that, but not a specific request for board seats. I then reiterated the request for board seats. You explained that you would have to talk the board about that.

Two weeks or so passed without a communication from you. I called to find out when we would have an opportunity to meet with the board. You then explained that while you were recommending that the

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