Canadian Pacific potash train at mile 113 on the Laggan Sub near Lake Louise, Alta.
As Bill Ackman's campaign to win voter support for a revamped board at Canadian Pacific Railway Ltd. moves into its final month, the New York activist is stepping up pressure with a shareholder letter faulting the railway for resistance to change.
"Despite the company's track record of underperformance, this board has always believed that progress is just around the corner. Time and time again, the company has announced a new plan, shown a glimmer of operational improvement, only to fail to achieve sustained progress," Mr. Ackman said in a four-page letter Monday to CP shareholders.
"The failure has been the execution of those plans by management and the board's inadequate oversight," he wrote.
Mr. Ackman, whose hedge fund Pershing Square acquired a 14.2-per-cent stake in CP last fall, penned his letter to shareholders ahead of the railway's release on Friday of what are expected to be greatly improved first-quarter results.
In his letter, he said it will take more than one good quarter to turn around a railway that ranks as the poorest performing among the top six in North America. This recent improvement, he said, cannot make up for "what history has demonstrated about management's and the board's inability to deliver sustained performance."
CP shareholders will vote May 17, at the company's annual meeting in Calgary, on whether to support Mr. Ackman's alternative slate of seven directors. Bolstering his argument that his slate and his proposed new chief executive officer, Hunter Harrison, will be a more engaged and effective choice, he said that his director nominees have acquired $2-million of CP stock in recent weeks.
Mr. Ackman has been criticized by CP supporters as an activist who is only seeking to wrest short-term gains from one of Canada's most historic companies. In his letter, he said Pershing Square's $1.4-billion investment is the largest initial purchase his fund has ever made and the stake is so large that it would be difficult to sell over the short term.
"No investor would buy 14 per cent of a company and join a board of directors unless it was interested in the creation of long-term shareholder value. We are 'all in' and will work extremely hard to maximize value for all shareholders and other stakeholders," he said.
Other critics have questioned Mr. Ackman's choice of Mr. Harrison, former CEO of Canadian National Railway Co., as the candidate to lead CP because he has been in retirement for more than two years and is 67.
CP defended its current roster of 15 directors, saying they have extensive business experience, and also maintained that the railway has the right management team led by CEO Fred Green.
"As evidenced by the company's last three consecutive quarters of sustained improvement in operating metrics, the CP team continues to successfully drive improvements," the Calgary-based railway said Monday. "CP is open to listening to ideas from all shareholders and continues to stand by its offer to William Ackman to join the board."
CP argued that if Mr. Green is ousted, Mr. Harrison "would delay and damage CP's value-generating plan, and represents unwarranted risk to shareholder value at a critical time."
But Mr. Ackman said Mr. Harrison is highly motivated to succeed at CP because he does not want to "tarnish" his legacy of turning around two troubled railways: Illinois Central and Montreal-based CN.
BMO Nesbitt Burns Inc. analyst Fadi Chamoun said in a recent note that CP benefited from a mild winter, but it's unlikely that sentiment among certain disgruntled shareholders will shift to backing CP in the proxy fight.