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Canadian Pacific shares rise on "new vision", including some 4,500 job cuts by 2016

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Canadian Pacific (TSE:CP)(NYSE:CP) shares gained more than 5 per cent Wednesday, after outlining a "new vision" for its future late yesterday, wasting no time in focusing on the efficiency targets chief Hunter Harrison promised to hit. 

He said the new plan, which would include cutting some 4,500 jobs by the end of 2016 - almost a quarter of CP's total workforce - would improve service, the railway's efficiency, and would lower costs. 

The company expects some 1,700 positions to be eliminated by the end of the year. 

Harrison, the former CEO of Canadian National Railway (TSE:CNR), was appointed the company’s CEO in the summer by CP’s new board of directors, after a successful proxy battle led by shareholder Bill Ackman. 

Before taking the role, Harrison said he would lower the company's operating ratio - a key industry benchmark for efficiency - to about 65 per cent in four years. 

"Momentum is building at Canadian Pacific and the organization is driving to a culture of intense focus on operations," Harrison said late Tuesday in a statement. 

"Service will be what drives this organization, by providing a premium, reliable product offering through a lower cost operation. "We have initiated a rapid change agenda and have made tremendous progress in my first 160 days, and we are only getting started."

Harrison's financial expectations for the company's journey to 2016 include a full-year operating ratio in the mid-sixties for 2016. He reportedly said yesterday that the ratio may drop as low as 63 per cent or come in close to 67 per cent, compared with 74 per cent in the third quarter. 

The company also anticipates cash flow before dividends of $900 million to $1.4 billion in 2016. 

"I have always maintained that by focusing on the best possible service, along with appropriate cost containment, the operating ratio will take care of itself. CP is no different; we already see the service and related bottom line benefits of our early actions," Harrison continued. 

CP also said it would explore options to maximize the "full value of existing and anticipated surplus real estate holdings", and would relocate its current corporate headquarters in downtown Calgary to a new office space at CP-owned Ogden Yard by 2014. 

Earlier Tuesday, the company said that it intends to explore strategic options for its 660-mile main line track that spans several midwest states in the U.S. The main line track encompasses CP's current operations between Tracy in Minnesota west into South Dakota, Nebraska and Wyoming. CP took over control of the line when it acquired Dakota, Minnesota & Eastern railroad in 2008.

CP will be contacting interested parties this month.  

As noted earlier this week, the company expects taking a fourth quarter estimated pre-tax non-cash charge of roughly $180 million, or $107 million after tax, on its option to build into the Powder River Basin.  It also anticipates taking a charge related to labour and other restructuring activities, the amount of which is under review.

Shares in the Canadian railway rose 5.3 per cent to $97.96 in Toronto on Wednesday afternoon.

Quick facts: Canadian Pacific Railway

Price: 354.74 CAD

TSX:CP
Market: TSX
Market Cap: $48.11 billion
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