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Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

Ackman's Canadian Pacific Payday at Canadian's Expense?

Bill Ackman's Pershing Square Capital Management LP  just had a big win. Who lost?

Ackman ventured to the Great White North as an activist shareholder trying to shake up Canadian Pacific Railway Ltd. (TSE:CP, NYSE:CP). Just over a year ago, he won a boardroom proxy battle.  Shareholders voted in favour of 6 new board members. They sacked the Chairman and replaced him with a hand-picked successor, Hunter Harrison.

 

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So far this was a typical business story. The brilliant strategy of Pershing was to lay off lots of CP employees. CP metrics didn't compare favourably with other railroads. The market bought the story and CP shares tripled since Pershing's initial investment.

Of course the fact that CP has to cross the Rocky Mountains and endure winter avalanches and spring floods wasn't in the metrics. A railway crossing the plains of Kansas would likely appear to be more efficient. 

On June 3, 2013 Pershing Square Capital announced that it was starting to sell off some of its postion in Canadian Pacific. 

Then the floods came to Calgary early in the morning of June 21st. The worst natural disaster in the city's history. The cherry on top of this prolonged state of emergency came 6 days later when 6 CP Rail cars became stranded on the one bridge that failed in the City of Calgary (images).

Calgary's beloved Mayor, Naheed Nenshi, asked the question on everyone's minds.

I'll be very blunt. I'll probably get in trouble for saying this. We've seen a lot of people lose their jobs at CP over the last year. How many bridge inspectors did they fire?

CP is swearing up and down that the bridge was inspected. What kind of inspections are required on a 100 year old bridge? They thought about sending a diver down to inspect the piers but of course the raging Bow River made that unsafe. They didn't mention taking any elevation readings on the bridge. They didn't mention checking tiltmeter data (better technology can eliminate jobs, but it can also increase safety.) CP doesn't mention the use of any technology apart from a "visual inspection" of the rails.

Fortunately disaster was avoided this time and the railcars were removed safely but close calls and derailments are not news to anyone following Hunter Harrison's "track record". Read Are derailments the cost of CP Rail’s efficiency drive? if you are curious.

Back to Ackman, he's been described as just pompous and arrogant and seems to have been born without the gene that perceives and measures risk in a recent Vanity Fair article. 

To summarize, CP is being gutted, public safety is at risk, and Ackman is selling his shares. Well played Mr. Ackman. No white hat for you.