Ackman wins key endorsements before CP meeting

Watch Pershing Square's Bill Ackman in an exclusive interview with BNN's Howard Green. 

The backing by Glass Lewis & Co and Egan-Jones, which mirror a recent recommendation by another advisory firm, Institutional Shareholder Services, point to a poor outcome for CP, Canada's No. 2 railroad, in its heated proxy battle with Ackman's U.S. hedge fund, Pershing Square Management.

Proxy advisory firms, whose advice to large institutional investors ahead of shareholder votes can shift votes for or against management, rarely support an entire slate.

"All three of the major North American proxy advisors recommend that CP shareholders vote on the blue (Pershing) proxy for all seven of the nominees for management change," Ackman said in a statement.

"We are unaware of so powerful and uniform an endorsement for change in the history of large-cap activism."

Pershing and CP management are locked in a bare-knuckled proxy fight over who should lead CP, the least efficient of North America's big railroads.

New York-based Pershing, which has a 14.1-percent stake in the railway, says CP chief executive Fred Green must be replaced, ideally by Hunter Harrison, the hard-driving former CEO of Canadian National Railway (CNR-T).

CP has adamantly refused to consider replacing Green with Harrison.

CP argues that Green has a turnaround plan for the railroad that is working, while Pershing has only a vague strategy. It has said a vote for Pershing nominees is a "vote for risk and disruption".

The railroad, which was not immediately available for comment on the two advisory reports, has said it plans to continue soliciting votes up until voting closes at CP's annual meeting on May 17.

"SERIAL UNDERPERFORMANCE"

In its note to clients, Glass Lewis advised its clients to back Pershing Square's slate of seven nominees and to vote against re-electing CP Chairman John Cleghorn, Green and six other directors.

"We believe the company's serial underperformance from a total shareholder return perspective and its industry-worst operating performance require a far-reaching overhaul of the board and senior management," it said.

"The record shows that under Green's and the current board's leadership, CP's shareholders have suffered through most periods, whether in times of boom, bust or recovery, relative to the performance of other railroads."

Egan-Jones took the same approach. "We believe that voting on the dissidents' ballot for the dissidents' nominees is in the best interest of the company and its shareholders," it said in a report recommending shareholders withhold votes from all 15 CP incumbents on the board.

Ackman has ruled out a compromise with CP, which last week indicated it was willing to negotiate ahead of its annual meeting in Calgary.

"It appears at this stage that Pershing Square Capital Management could win all seven board seats as a result of this proxy contest," said BMO Capital Markets analyst Fadi Chamoun in a note to clients.

Earlier this week, Ontario Teachers' Pension Fund, a large Canadian Pacific shareholder, said it would vote for Ackman's slate instead of the incumbent board. Its support for Pershing is line with recent polls that indicate most institutional shareholders favor Pershing's slate.

Holders of about one-third of CP shares have already voted, Ackman said at a Toronto event on Tuesday, with more than 95 percent of those shares cast in favor of Pershing's slate.