(Reuters) - Ontario Teachers' Pension Fund, a large Canadian Pacific Railway shareholder, will vote for William Ackman's slate of directors instead of the incumbent board, strengthening the activist investor's hand ahead of next week's proxy showdown.
Teachers said on Monday it would not vote for CP's slate of proposed directors because the company's performance has lagged its peers during Fred Green's tenure as chief executive.
In a statement posted on its website, Teachers said a recent set of strong CP results had failed to convince it that CP was outperforming its peers and it believed "there is more risk" in maintaining the status quo.
"After reviewing the proxy materials for both management and the dissident, Teachers' is voting the dissident proxy, requiring an 'abstain' vote on the management proxy," the pension fund manager, one of Canada's largest, said.
A proxy battle between Canada's second biggest railroad and Pershing Square Capital Management, a hedge fund that Ackman runs, will be decided at CP's annual meeting in Calgary, Alberta on May 17. Pershing is CP's biggest shareholder with a 14.1 percent stake.
"We urge the Ontario Teachers' Pension Plan to reconsider its decision and to support the CP board nominees and the continued creation of value through the aggressive and successful execution of CP's multi-year plan," CP said in a statement.
The railroad said it would continue soliciting shareholders to vote in favor of its board nominees up until voting closes next Thursday.
Teachers owns approximately 2.46 million shares in CP, or a stake of 1.33 percent as of March 31, according to Thomson One data. That makes it CP's 16th largest shareholder.
Teachers' support for Pershing is in line with recent polls that indicate that most institutional shareholders favor the Pershing board nominees.
Institutional Shareholder Services Inc., a leading advisory firm on proxy contests, last week endorsed the activist investor's entire slate of seven nominees to sit on CP's board.
In a nine-page statement, CP said on Monday that the ISS report contained a number of inaccurate and misleading statements and comparisons.
"Among others, ISS misrepresents CP's management recommendations for director nominees, creates a peer group for CP that is not comprised of CP's listed Class I peers and gets the location of the company's annual meeting of shareholders wrong," CP said.
It also criticized ISS for a "lack of thorough analysis and objectivity".
A recommendation from Glass Lewis, another advisory firm, is expected this week.
Pershing wants to replace Green with Hunter Harrison, the former chief executive of CP rival Canadian National Railway, who the fund believes will boost CP's lagging performance as he did at CN.
CP's board has thrown its support behind Green and said repeatedly that installing Harrison as CEO will be harmful for CP's business, something Teachers' questioned.
"We believe that CP's multi-year plan is similar to those previously executed by Mr. Harrison and that a change in management would not imperil the success of executing the (plan)," Teachers said.
CP's stock closed was 12 Canadian cents weaker at C$74.49 on the Toronto Stock Exchange.
Reporting By Nicole Mordant in Vancouver; Editing by Frank McGurty and Janet Guttsman