CN and a shareholder in public dispute over leadership and direction of the railway
In the next six months, rail freight watchers could witness a public relations battle between Canadian railways CN and activist investor based in London TCI fund management on CN leadership and direction.
Both seek to win the hearts of CN shareholders, who will meet on March 22, at TCI’s request. TCI wants shareholders to consider replacing four of CN’s board members with four of its own nominees, as well as replacing CN President and CEO JJ Ruest with his pick, Jim Vena, a former CN and most recently Union Pacific (NYSE: UNP).
In a filing with the U.S. Securities and Exchange Commission last month, TCI questioned CN’s leadership after CN’s failed attempt to acquire Kansas City Southern (NYSE: KSU). TCI founder and managing partner Chris Hohn, who owns 5.2% of CN (NYSE: CNI), said CN has been “underperforming” in recent quarters, as evidenced by a ratio of increasing operations compared to other Class I railways, and that its recent attempt to acquire KCS has demonstrated “misguided” priorities.
Since that filing, CN has accepted TCI’s request for a meeting of shareholders, announcing the date of the meeting on Monday. But the railroad also defended itself against what it called “questionable” claims about the leadership and direction of CN.
The railroad called TCI on Monday a “dissident shareholder who only recently acquired a 5% stake in CN and seeks to assert effective control over one of the largest and most economically important companies in the country. Canada. It does so without presenting a credible plan to create superior or lasting value.
CN too said last friday TCI’s participation in CN’s competitor, Canadian Pacific (NYSE: CP) demonstrates a conflict of interest.
“Earlier this year, TCI worked constructively with CN, encouraging it to be a leader and present its Climate Action Plan to its shareholders for approval. By all accounts, it looks like TCI went on to vote in favor of the directors, the compensation vote and CN’s Climate Action Plan at the company’s annual general meeting on April 27, 2021. It was then voted in favor of CN. The same is true of the overwhelming majority of CN shareholders. At the AGM, all directors received over 95% of the votes in favor, and the Company’s compensation resolution passed with 97.7% support, ”CN said.
He continued, “Notably – this expression of overwhelming support came a week after CN announced its first offer to buy KCS. Nothing substantial has changed since then, except for our increased bid for KCS, which secured an agreed-upon transaction with KCS, and the pro-compete commitments we made in our submissions to the Surface Transportation Board, which, although clearly positive for CN, have been costly and may still be problematic for CP. It was only after this that TCI increased its stake in CN and began to publicly attack the company. “
CN has also sought to answer questions about its financial performance and operating ratio by setting a target OR of 57% in 2022 and conducting a strategic review of its non-rail assets.
TCI hit back on Tuesday, stating that “CN shareholders deserve the truth”.
“Like many other CN shareholders, TCI strongly believes in the success and long-term growth of the Canadian rail industry and therefore owns [shares in] CN and CP, with a larger stake in CN. This is by no means unusual in the sector or in other industries, ”TCI said. “For years, CN has been losing market share. TCI believes that with a strong board of directors and a world-class CEO, CN will regain its market leadership and once again become the fastest growing and most profitable Class 1 railway.
TCI said CN shareholders should focus on the board candidates it presented, as well as their qualifications. The nominees are Gilbert Lamphere, Allison Landry, Rob Knight and Paul Miller, all of whom are industry veterans with operational experience, according to TCI.
“The board can also try to turn the special meeting into a vote on TCI, rather than having an objective and informed debate on the merits of the four candidates. … The truth is, CN’s board of directors and CEO do not have the necessary operating and railroad expertise to improve the company’s performance. Gilbert Lamphere, Allison Landry, Rob Knight and Paul Miller have significant operational experience and analytical capabilities in the rail industry, and their election, along with a new CEO, will provide the essential expertise CN needs to reach its full potential, ”said TCI. .
Click here for more FreightWaves articles by Joanna Marsh.