March 7, 2012 / 10:03 PM / in 6 years

Canadian Pacific ratchets up proxy battle defense

(Reuters) - Canadian Pacific Railway Ltd (CP.TO), 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), 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.

Replacing Green with Pershing’s candidate for CEO, Hunter Harrison, the former CEO of rival Canadian National Railway (CNR.TO), would put the progress CP is making on its multi-year plan at “severe risk”, Cleghorn said in the letter.

CP again slammed Pershing Square for not presenting a detailed plan for the railroad, saying it “risks moving CP in the opposite direction”.

“It is exactly the wrong thing to do at exactly the wrong time,” Cleghorn said.

Pershing Square was not immediately available for comment.

Shareholders are due to vote on May 17 on a slate of six directors that Pershing has nominated for CP’s board.

Reporting by Nicole Mordant in Vancouver; editing by Peter Galloway and Rob Wilson

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