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Canadian National Railway Co. (CNR-T) has served notice to U.S. investor activist Bill Ackman that he and Hunter Harrison may have violated non-compete agreements in their campaign to install Harrison as the chief executive officer of rival Canadian Pacific Railway Ltd. (CP-T)
"CN has asked Mr. Harrison to respect his commitments to CN and to reconsider his expressed interest in a position at Canadian Pacific Railway Ltd. CN has also put William A. Ackman of Pershing Square Capital Management LP on notice to cease any efforts to induce breaches of Mr. Harrison's contractual obligations to CN," Montreal-based CN said in a statement Friday.
Pershing Square is Calgary-based CP's largest shareholder, with a 14.2-percent stake. The New York-based hedge fund began acquiring CP stock last September, and has now invested nearly $1.4 billion (US) for its 24.15 million CP shares.
"As part of his employment contract with CN, Mr. Harrison agreed, upon retirement as president and chief executive officer on Dec. 31, 2009, to be bound by a broad range of confidentiality and multiyear non-competition and non-solicitation provisions," said CN, which is Canada's largest railway.
"CN's board of directors is closely reviewing all developments concerning these matters with a view to enforce Mr. Harrison's contractual obligations to CN and take all actions necessary to protect the legitimate interests of the company."
CN's statement comes after CP chairman John Cleghorn issued a public letter on Monday that supports Fred Green as CP's CEO. Cleghorn rejected the appointment of Harrison as "detrimental" to CP's efforts to modernize its fleet and rail network.
Harrison retired from CN at the end of 2009. He had a non-compete clause that expired at the end of 2011, so he believes he is now able to accept a job that entails competing against CN, if he so chooses, though his CN pension benefits would be affected from 2012 to 2014.
CN declined further comment Friday, but in a statement on Jan. 3, the freight carrier noted that there is a non-compete condition attached to Harrison's retirement and pension arrangements that is in effect until Dec. 31, 2014.
In a proxy battle, Ackman plans to propose a minority slate of alternative directors for CP that will campaign for shareholder support by calling for the ouster of Green.
CP has been seeking to improve its operating ratio, a key indicator of productivity that measures operating costs as a percentage of revenue. CP's operating ratio ranks as the worst among North America's Big Six railways.
"The board is confident in CP's ability to reach an operating ratio (OR), or operating expenses as a percentage of revenue, in the low 70s in the next three years. We will not stop there - as we achieve our goals, we will set new targets," Cleghorn said in his letter to CP shareholders on Monday.