Canadian Pacific ratchets up proxy battle defense

Wed Mar 7, 2012 6:28pm EST
 
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(Reuters) - Canadian Pacific Railway Ltd (CP.TO: Quote), ratcheting up its defense in a proxy battle with its biggest shareholder, said on Wednesday its "strong" customer relationships are paying off and posted testimonials from satisfied companies.

A number of customers, including miner Teck Resources TCKb.TO and potash producer Mosaic (MOS.N: Quote), said they were pleased with the service from Canada's No. 2 railroad and some went further to back its chief executive, Fred Green.

"We are pleased with his leadership and support of the team in making our joint growth targets achievable," said Don Lindsay, the president and CEO of Teck, a major producer of coal, copper and zinc and CP's biggest customer.

The testimonials were contained in a letter to shareholders signed by CP Chairman John Cleghorn.

Pershing Square Capital Management, which owns 14.2 percent of CP, wants to oust Green, blaming him for the railroad's sluggish performance.

In the letter, CP said the volume growth that should come from customer relationships would help improve the railroad's operating ratio by 600 basis points between 2011 and 2014.

The operating ratio is an important barometer of how efficient, and ultimately profitable, a railroad is. CP repeated that its goal is to improve its ratio to 70 to 72 percent by 2014 from 81.3 percent now - the weakest of North America's Class 1 railroads.

A lower ratio, which measures the percentage of revenue needed to run the railway, signals greater efficiency.

"This is the same thing that they have been saying since Day 1 ... They are just trying to make their case to shareholders," Edward Jones analyst Brian Yarbrough said of the letter.   Continued...