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CP, Pershing continue battle, CP's Q1 expected Friday


The battle between Canadian Pacific Railway (TSE:CP) (NYSE:CP) and its largest shareholder, Pershing Square Management, continued Monday with more letters from both sides going out to shareholders.

CP is hoping to gather momentum in the upcoming proxy contest when it releases its first-quarter results on Friday, counting on shareholders to latch on to the company’s turnaround strategy.

Pershing, which owns about 14 percent of CP's shares, said earlier this month in the proxy circular that "for the past six years, the board and Mr. Green have led CP down the wrong track".

Pershing wants to replace CP’s CEO Fred Green and convince shareholders to fully back all seven of its chosen nominees for a management change. Pershing is hoping that former CEO of Canadian National Railway Co., Hunter Harrison, will take the place of Green as CEO.

"Despite the company’s track record of underperformance, this board has always believed that progress is just around the corner," said Pershing’s manager William Ackman Monday in the letter.

"Time and time again, the company has announced a new plan, shown a glimmer of operational improvement, only to fail to achieve sustained progress. The failure has been the execution of those plans by management and the board’s inadequate oversight."

Ackman also noted Monday that Pershing’s nominees have "reached into their own pockets and purchased approximately $2 million of stock in the company," indicating that despite reports to the contrary, he and his nominees are "all in" regarding the creation of long-term shareholder value.

He added that CP’s current independent directors only hold 0.2 percent of stock, mostly granted from the company and not bought with their own cash.

CP responded Monday, stating: "As evidenced by the company's last three consecutive quarters of sustained improvement in operating metrics, the CP team continues to successfully drive improvements.

"Furthermore, CP will confirm expectation-beating financial performance and provide full details for the first quarter on its earnings call on Friday, April 20, 2012."

CP refuted several claims made by Pershing in a proxy circular submitted to regulators last week, and urged shareholders to vote for its slate of nominees for the board at the company’s annual general meeting in Calgary on May 17.

Ackman said it will take more than one good quarter to turn around a railway that he says ranks as the poorest performing of 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 said its management team is aggressively and successfully executing on the company's multi-year plan to deliver a 70 to 72 operating ratio for 2014, and is targeting an operating ratio of 68.5 to 70.5 for 2016.

The company also said it delivered record operating performance figures in the first quarter with improvements over the year-prior quarter and over the average of the previous three years' first quarters.

In a statement last week, CP said that Pershing Square is unable to articulate any plan or concrete suggestions to deliver results comparable to CP's multi-year plan, let alone achieve its previously stated target of a 65 per cent operating ratio by 2015.

"The board believes that Pershing Square's proposal to replace CP's CEO, Fred Green, with Hunter Harrison would delay and damage CP's value-generating plan, and represents unwarranted risk to shareholder value at a critical time," the company further stated.

CP said it saw year-over-year growth in grain, coal and industrial and consumer products, particularly in energy.  Automotive and intermodal continue to show strength, said the company, as it builds on its customer relationships.

Canadian Pacific operates a North American transcontinental railway providing freight transportation services, logistics solutions and supply chain expertise.

CP’s shares were up 0.17 percent on Monday afternoon at $75.80.

Quick facts: Canadian Pacific Railway

Price: 347.35 CAD

Market: TSX
Market Cap: $47.11 billion

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