In another case of an activist investor taking on a company and winning, William Ackman is the latest victor.
Philip Carret was an investor and founder of Pioneer Fund, one of the first mutual funds in the United States. Carret ran the mutual fund for 55 years, during which time an investment of $10,000 became $8 million. That suggests he achieved a compound annual return of nearly 13% for his investors. Q1 2021 hedge Read More
On Thursday, Canadian Pacific Railway Ltd (NYSE:CP) (TSE:CP) Chief Executive Fred Green threw in the towel and resigned after a long proxy fight with Ackman. This will pave the way for a management upheaval at the second-largest railroad in Canada.
Green will be joined by four other directors who will not be re-elected at the company’s annual shareholder meeting held on Thursday. This will enable seven nominees from Ackman’s Pershing Square Capital Management to descend on Canadian Pacific’s now 16-member board of directors.
Ackman began moving in on the company last October when he purchased a 12.2 percent stake. He slowly increased his position while angering the company’s management and asking for the removal of Green in January.
In March, Canadian Pacific actually nominated Ackman to its board of directors, but the investor declined because he wanted his handpicked nominees to join him and his CEO successor of choice, Hunter Harrison. He is the former CEO of Canadian National Railway (NYSE:CNI) (TSE:CTR) and had been credited with boosting efficiency, slashing costs and making employees have trains run on time at the company.
Ackman’s discontent with Canadian Pacific came from his belief that the company had “untapped potential” that could move forward with a new management team. He used the website, CPRising.ca, to promote his cause while trashing Green and the board.
He also said his plan for change was “simple:” he just wanted a management change. He believed the Canadian Pacific leaders had caused a large decline in market share and mismanagement of capital.
Fast forward to two months later and Ackman is getting what he wanted. Whether Harrison takes over the reins or not, will be determined but Ackman said there were numerous candidates for the job and advised that Canadian Pacific “will not make progress overnight.”
The company’s shareholders appear to support Ackman. According to The Wall Street Journal, since October, Canadian Pacific’s shares traded at $59 before Ackman’s stake was revealed; they have steadily risen, close to 30 percent, after hitting almost $80 per share.
Prior to the company’s announcement on Thursday, Barclays increased its rating on Canadian Pacific to “overweight” from “equalweight.”
Barclays analyst Brandon Oglenski said in a research note, “Renewed operational discipline should drive material improvement, with the potential to nearly double the current earnings base of the company. CP does trade near the top of railroad valuations, but with meaningful earnings growth potential, we see significant value in the company’s shares.”
Oglenski raised his price target on the shares to $93, up from $81.
The stock is up 0.57 percent to $75.30 at the time of this writing.