Hedge fund manager William Ackman© Shannon Stapleton / Reuters/Reuters
Shareholder activist William Ackman has entered discussions with the senior management and board of Canadian Pacific Railway Ltd. as part of a broad review of the underperforming railway's governance, financial health and strategic plans.
According to a document filed with the Ontario Securities Commission Thursday, Mr. Ackman's New York hedge fund, Pershing Square Capital Management LP, is talking to a wide circle of CP officials and stakeholders, including unnamed shareholders and "other relevant parties." The filing said these talks related to CP's existing management, operations, assets, financial condition and strategic plans.
Mr. Ackman declined to comment about the filing and Calgary-based CP has previously indicated it will not comment on Pershing's moves.
According to people familiar with the talks, it is understood that Mr. Ackman met with senior CP officials this week, only days after his fund revealed last Friday that it had invested $1.07-billion to acquire a 12.2 per cent stake in the railway.
It is almost unheard of for shareholder activists to gain such quick access to senior officials of a major company. That CP would engage in discussions so soon with Mr. Ackman reflects his unique and growing influence in the capital markets. He is one of the few activists with enough capital at his disposal to make billion-dollar bets on so-called large cap stocks and his recent bets on U.S. retailers and against U.S. mortgage companies has earned him a following with other large shareholders.
Pershing's regulatory filing says it can pursue a number of options with CP, including purchasing additional shares or selling some or all of its current holdings.
CP said in a statement earlier this week that it was open to potential talks with Mr. Ackman. But it defended itself against criticism from some analysts and investors about its poor stock performance and operational issues.
"CP has positioned itself for long-term growth with its customers through a ramping-up of resources across our network, enhanced network capacity, more people power and more locomotives," the railway said.
Analysts say CP has been a laggard when compared with rival Canadian National Railway Co. , pointing to a key indicator called the operating ratio – operating costs as a percentage of revenue. A lower operating ratio is better, and while CP's nine-month performance worsened, CN's ratio improved.
On Thursday, CP shares rose 33 cents (U.S.) to close at $61.92 a share on the New York Stock Exchange. Pershing paid an average of $54.46 a share for 18 million CP common shares, and also acquired 2.65 million call options.