TORONTO (Reuters) - Activist investor William Ackman shut the door on Tuesday to a late compromise with Canadian Pacific Railway Ltd, setting up Canada’s second-largest railroad for an embarrassing defeat in a proxy vote next week.
Holders of about a third of CP shares have already voted, Ackman said, with more than 95 percent of those shares cast in favor of a slate of directors nominated by his Pershing Square Capital Management. The U.S. hedge fund is CP’s largest shareholder, with 14.1 percent.
With shareholder polls indicating that its slate would likely go down in defeat, CP indicated last week it was willing to negotiate a compromise with Pershing ahead of the vote at its annual shareholder meeting next Thursday, May 17, in Calgary.
But Ackman insisted on Tuesday that a shareholder vote is the best way to end the struggle over the shape of the CP board. “I think it actually needs to go to a vote,” he said at the Bloomberg Canada Economic Summit in Toronto.
Asked if he would accept any type of compromise from CP at this stage, Ackman said: “No. The shareholders we talk to want the vote and the message delivered.”
Ackman’s aim is to replace CP Chief Executive Fred Green with Hunter Harrison, the hard-driving former CEO of Canadian National Railway. Pershing launched its slate of dissident directors - there are now seven, including Ackman - after the existing board backed Green.
Ackman said shareholders should also have a chance to decide which of CP’s 15 current directors should stay on the board.
CP said in an emailed statement that “a vote for seven Pershing Square nominees is a vote for risk and disruption.”
New York-based Pershing says the Canadian railroad is less efficient and less profitable than North America’s other big railroads and that Harrison is the man to turn it around.
“The railroad needs to be run by someone like a general - Hunter is a lot more like Patton,” Ackman said, referring to George Patton, the U.S. Army general renowned for his hard-nosed leadership during the Second World War.
Even so, Ackman said he is open to other CEO candidates, and that a new board would conduct a full search.
Recent polls indicate that most institutional shareholders favor the Pershing nominees over CP’s existing directors. [ID:nL2E8FQFMC] On Monday, CP suffered another blow when the Ontario Teachers Pension Fund said it would vote for Ackman’s slate instead of CP’s incumbent board.
Asked if there was any way for CP to back down at this late stage, Morningstar analyst Keith Schoonmaker said:
“I think it’s going to go to the shareholder vote. I don’t see any other resolution at this point. I think both parties have drawn a line in the sand, and shareholders will have to decide.”
CP is looking for anything they can do to find a “quasi-honorable exit,” said Brad Allen, a senior vice president at proxy solicitation firm Laurel Hill Advisory Group, which is not involved in the conflict.
“The reputational impact is significant for them, to be poster boys for the blue-chip board that got kicked out,” Allen said.
Ackman said the proxy contest has cost Pershing US$10 million to US$15 million.
CP’s shares ended down 1.7 percent at C$73.69 on a substantially weaker Toronto Stock Exchange.
Writing by Nicole Mordant; Additional reporting by Susan Taylor; Editing by Frank McGurty and Janet Guttsman