Canadian Pacific & Ackman Spar

By now you have heard about the drama at $CP (Canadian Pacific). Ackman and Pershing took a 14.2% stake in the company and are pushing for change. Last weekend a story hit Canada’s Globe and Mail detailing some of what Ackman had suggested. This apparently pissed off $CP’s Chairman who fired off this missive to Ackman:

3 January 2012

Dear Mr. Ackman:

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I have appreciated the dialogue between us and am optimistic that we can continue to discuss how to reach an agreement which advances the best interests of Canadian Pacific. However, on behalf of the Board of Directors of Canadian Pacific I am writing to express concern about recent media reports and to set the record straight regarding assertions attributed to “people familiar with the strategy of Mr. Ackman’s New York hedge fund Pershing Square Capital Management LP.” It is disappointing and highly inappropriate that Pershing Square made inaccurate comments in an article appearing in last Friday’s edition of The Globe and Mail (“CP’s activist investor eyes former CN CEO Hunter Harrison”) and to other media organizations in an effort to advance its own objectives. We are troubled by the inaccuracies and mischaracterizations that have appeared in the media.

Contrary to media reports including Friday’s Globe and Mail article, no member of CP’s Board of Directors has “expressed enthusiasm for Mr. Harrison and requested a meeting with him.” Indeed, no invitation has been extended by us to Mr. Harrison, either directly or via Pershing Square.

When Pershing Square put forward Mr. Harrison’s name as part of its presentation to the company, CP expressed concern regarding Mr. Harrison’s contract with Canadian National Railway and his ability to engage with CP due to his non-compete arrangements. Further, you made assertions in your presentation and our subsequent discussions regarding possible improvement in CP’s operating performance but you acknowledged you did not have a plan either as formulated by Mr. Harrison or Pershing Square.

We believed that we had established a constructive dialogue with Pershing Square. As part of that dialogue, the Board extended an invitation to you to join the Board, subject to you agreeing to customary arrangements. As you told me, Tony Ingram and Ed Harris are great additions to the Board. Moreover, the appointment of these two directors was met with a very positive reception from shareholders, customers and employees. As a prospective Board member, you would be expected to work constructively with your fellow Board members on the Company’s behalf and in the interest of all shareholders.

CP is focused on maximizing shareholder value through an ongoing commitment to safely delivering excellent customer service and increasing asset velocity, efficiency and productivity. We are executing on our plan, which we believe will deliver an annual operating ratio in the low 70s in the next three years. CP has a strong management team and an independent Board made up of directors with extensive experience in railroads, energy, natural resources, food and agriculture, law, government, banking and finance.

Leaks to the media are counterproductive, and we hope that they are not attributable to you personally. With that said, we are willing to continue our dialogue in order to advance the best interests of the Company.


John Cleghorn

Chairman of the Board of Directors

A few things:

First, note the tone of the letter? Is it just me or does it seem as though the Chairman believes the company belongs to him and the Board and not shareholders? It would appear Cleghorn is doing the guy who invested over $1.6B in the company a favor by allowing him and two others the opportunity to join the Board and actually have some say in the direction of the company. Taking a look at what HE owns of the company sheds some light on the “why” of this:

Yup, 12,000 shares…….

Here is what he gets paid:

And finally his holdings YOY:

In addition, the DSU Plan provides for all directors to receive 100% of their long-term compensation in the form of DSUs. Newly-appointed or elected directors receive an initial grant of $100,000 in DSUs upon joining the Board. Directors receive an annual grant of $50,000 in DSUs following each annual meeting of shareholders as part of their stock based compensation; directors also receive a quarterly grant of $12,500 in DSUs. The Chairman of the Board receives a quarterly grant of $26,250 in DSUs. Only non-employee directors participate in the DSU Plan.

So, a $175k a year salary and $155k in DSU’s (Director Stock Units, settled for cash upon leaving the Board) a year for those 5 meetings….

12,000 shares………let it sink in……. vs the >25M Ackman has…… remembering of course shareholder = owner.

Is it just me or does this remind us of $JCP in the early days?

Second, I am not sure what he was thinking and maybe he thought Ackman would just take it and not retort? I hope not because if that is the case, the man needs to do some homework on the company’s largest shareholder.

Pershing Letter to $CP (click to open pdf)

Seems to me we have a “failure to communicate”. I’m going with the “Cleghorn didn’t tell some folks about his conversation w/Ackman and looked bad when the news hit the wires” scenario. His letter smacks of “legalese” rather than honesty. Take this:

Contrary to media reports including Friday’s Globe and Mail article, no member of CP’s Board of Directors has “expressed enthusiasm for Mr. Harrison and requested a meeting with him.” Indeed, no invitation has been extended by us to Mr. Harrison, either directly or via Pershing Square

So, does this mean they were actually “interested” , not “enthusiastic”?” Does it mean he called Ackman to inquire about a meeting but since he did so without the consent of the the full Board he is saying “the Board” did not extend the invitation? The letter to me seems too carefully worded. Why not just categorically deny everything in the Globe and Mail article?

Third, “customary arrangements”. This is where Cleghorn loses me totally. When customary = giving up your shareholder rights, it is clear he wants Ackman to become “one of us” and not “one of those shareholders”. The fact these arrangements are glossed over as immaterial when in fact they go to the crux of the issue further diminishes Cleghorn’s stance to me.

Fourth……”no plan”? Really? So we are to believe Ackman (or ANY activist investor) makes an over $1Binvestment, gets a Board meeting, sits down and says “So, anyone got any ideas?” Really? This is laughable.

This is going to be fun to watch…..I would pay to buy a ticket at the next Board meeting…can I get those on StubHub?