Board Believes a Vote for Pershing Square and Hunter Harrison is a Vote for Risk and
Disruption
Sends Letter to Shareholders
CALGARY, May 2, 2012 /PRNewswire/
- Canadian Pacific (TSX: CP) (NYSE: CP) today sent the following
letter to shareholders:
May 02, 2012
Dear Fellow Shareholder:
CP needs to grow to achieve its potential. Railroads
prosper through traffic density and our Multi-Year Plan is
specifically designed to grow CP's volumes and significantly
enhance shareholder value.
Between now and CP's annual meeting on May 17, 2012, CP recommends that you vote
FOR continued growth, success and momentum on the
WHITE universal proxy.
CP has the right team in place to enhance shareholder value —
our experienced management team is successfully executing on the
Multi-Year Plan, which is delivering record operating metrics and
improved financial performance, as evidenced by our strong first
quarter earnings.
CP's Board unanimously believes that Pershing Square's demand
that CP replace the Company's CEO with Mr. Harrison would delay and
damage CP's value-generating plan, and put our progress and
momentum at significant risk. While Pershing Square
appears to agree with CP's Plan in principle, its stated approach
is diametrically opposed to the Plan's successful
implementation. Pershing Square has stated that the bulk of
its projections are based on cost-cutting when in fact CP has
maintained operating expense unit costs comparable to Canadian
National Railway ("CN") since 2006, excluding legacy pension
expense. We believe Pershing Square's approach does not make
sense for your Company and represents a real risk to your
investment in CP.
Shareholders should ask themselves how deep Pershing Square
and Mr. Harrison would cut in order to achieve their unprecedented
Operating Ratio ("OR") targets. Public statements by
Pershing Square and Mr. Harrison imply that they plan to cut
expenses by nearly $700 million by
2015, an amount equivalent to the cost of 45 per cent of CP's work
force or more than the expense associated with the leases,
depreciation and maintenance for the company's entire locomotive
and rail car fleet. In short, Pershing Square is proposing to
make drastic and unrealistic cuts to one of the smallest of the
Class I railroads to achieve OR targets at a rate that no
management team has ever delivered.
CP'S MULTI-YEAR PLAN HAS SIGNIFICANT MOMENTUM
AND IS DELIVERING RECORD OPERATING METRICS AND IMPROVED
FINANCIAL PERFORMANCE
Every successful turnaround of a railroad has been based on a
clearly articulated plan which balances revenue growth and
efficiency. Some of the key programs in CP's Multi-Year Plan,
which is designed to get the most out of CP's unique assets
include:
- Operating longer, heavier trains. By leveraging
advances in train marshaling and train control technology and
establishing a network of long sidings so that trains can meet and
pass efficiently, CP can move more volume with fewer new train
starts. This strategy, developed under Fred Green's leadership, has been built with
productivity in mind.
- Improving our yard processing capabilities. Yard
processing can have a major impact on the fluidity of a railroad,
and enhancing this key aspect of our network will facilitate a
lower cost operation, improve customer service and enable growth -
all without the capital-intensive process of adding significant
yard infrastructure. The results of this program are evident
in our reported results.
- Extending CP's market reach and length-of-haul. CP
is successfully expanding our revenue base and profitably growing
the business by leveraging the market reach and length-of-haul
provided by the DM&E. The addition of the DM&E
extended CP's reach deep enough into the U.S. to give the Company
direct access to Kansas City, the
second largest rail terminal in the U.S. The DM&E also
allowed CP to expand the reach of our successful agri-business,
creating one of North America's
best grain origination franchises, and gave the Company destination
optionality for Bakken crude - a fast-growing energy market with
huge potential.
The management team's successful execution of the Multi-Year
Plan - as evidenced by the record operating metrics CP has
consistently delivered over the past several quarters - has enabled
CP to narrow the target OR range for the plan from the low 70's to
70 - 72 per cent for 2014. Recently, further success and a
clear line of sight to new growth opportunities allowed CP to
extend the Multi-Year Plan out by two additional years with a
target OR range of 68.5 - 70.5 per cent for 2016.
Importantly, these initiatives are fundamental components of our
strategy to drive volume growth over the horizon of the Multi-Year
Plan.
VOLUME GROWTH AND STRATEGIC INVESTMENT
ARE CRITICAL TO CP'S FUTURE SUCCESS
Volume growth represents 900 basis points of CP's targeted OR
improvement over the next five years. CP's continued service
improvements and $1 billion new
business opportunity pipeline are key elements in driving
profitable growth over the Multi-Year Plan horizon.
CP operates in a highly competitive landscape - more than 80 per
cent of CP's franchise has direct rail competition compared to a
much lower portion of CN's franchise - and therefore customer
relationships are critical. Customers choose CP because
they WANT to do business with us - not because they must.
Our customers' confidence in CP is directly responsible for CP's
success in securing contracts with favourable pricing, margins and
market share commitments. In turn, the company's major
contract wins, including favourable long-term agreements such as
those with Canpotex and Teck, have provided the stability to
confidently make value-generating investments.
Since 2005, CP has strategically invested over $350 million to enhance capacity to enable
low-cost growth. During the recession in 2009, we prudently
reduced the amount of capital that would normally be available for
investment. As a result of management's aggressive actions
during the recessionary period, CP was able to resume its capital
investments in locomotives, longer sidings and track
upgrades. When paired with the key programs underlying our
Multi-Year Plan, our improved infrastructure makes for a
fundamentally enhanced railroad and has been a major factor in
enabling record-breaking operating performance.
THE PERSHING SQUARE AND HARRISON
PROPOSAL TO CUT THEIR WAY TO SHARE PRICE GROWTH IS
FLAWED
Pershing Square says it can achieve its OR goal of
65 per cent by 2015 predominantly through cost cutting. In an
interview on CNBC on April 30, 2012,
William Ackman, CEO of Pershing
Square, stated, "This is a cost story more than it's a revenue
story." In the same interview, Mr. Harrison revealed that his
plan included only 2.5 per cent annual revenue growth, noting "ours
is on the cost side, theirs is on the revenue side."
However, CP's cost per revenue ton mile - the key operating
expense unit cost most frequently used in the railroad industry -
has been comparable to CN's since 2006, excluding legacy pension
cost. As the programs underpinning our plan take hold, we
expect to drive further improvements.
CP cannot cut its way to growth. It must invest to grow.
This is what the proxy contest is really about. This is
why a vote for Pershing Square and Hunter
Harrison is a vote for risk and disruption.
PERSHING SQUARE'S DEMANDS RISK DISRUPTING CP's
SIGNIFICANT MOMENTUM
The Board of CP believes that a Plan that appropriately balances
revenue growth, capital investment for future profitability, and
cost control is necessary to get the most out of CP's unique
assets. CP's Multi-Year Plan does exactly that. The
entire Board of CP, including our Safety, Operations and
Environment Committee, will continue to closely oversee
management's execution of the Multi-Year Plan and the significant
shareholder value we believe it will yield. Make no mistake;
the Board is holding Fred Green and
the CP management team fully accountable for the success of this
Plan. As Michael Phelps, Chairman of the Board's Management
Resources and Compensation Committee, said at CP's 2012 Investor
Day on March 27th, 2012, "The
expectation is of a significant, measurable, evident, continuous
improvement, or else... We understand the expectations from the
marketplace and we expect to see improvement."
The CP Board believes that Pershing Square's demand that CP
replace the Company's CEO with Mr. Harrison would result in major
disruption to the momentum CP has built. Furthermore, the
Board believes that management change at this time represents
unwarranted risk to the successful execution of the Multi-Year Plan
and to creating value for shareholders.
Shareholders should ask themselves: why change a team with a
winning plan? Why agree to a plan and then make it impossible to
implement?
You may vote for CP's director nominees using the instructions
provided on the WHITE universal proxy on the Internet, or by
signing, dating, and returning the WHITE universal proxy in
the postage−paid envelope provided. Only your last−dated
proxy will count. Any proxy may be revoked at any time prior
to its exercise at the annual meeting as described in the
Management Proxy Circular.
CP would like to thank all CP shareholders who have voted for
CP's director nominees, including those who have privately
expressed their intent to vote for the CP Board at the upcoming
annual meeting.
You can visit www.CPonTrack.com for a copy of CP's Management
Proxy Circular and for more information about CP, our team and our
value-generating Multi-Year Plan.
On behalf of CP's Board of Directors, thank you for your
continued support and interest in CP.
Sincerely,
/s/
John E. Cleghorn
Chairman of the Board of Directors
If you have any questions about the information contained in
this document or require assistance in completing your
WHITE universal proxy, please contact our proxy
solicitation agents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Georgeson |
|
|
|
|
|
|
MacKenzie Partners, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOLL FREE - 1-866-374-9187 or
International Toll Free Number
(outside Canada and
U.S.): 1-866-682-6148 |
|
|
|
|
|
|
TOLL FREE 1-800-322-2885
or
(212) 929-5500 (Call Collect) |
|
|
|
|
email: askus@georgeson.com |
|
|
|
|
|
|
email: proxy@mackenziepartners.com |
|
|
|
|
|
|
|
Note on Forward-Looking Information
This news release contains certain forward-looking information
within the meaning of applicable securities laws relating, but not
limited, to our operations, priorities and plans, anticipated
financial performance, business prospects, planned capital
expenditures, programs and strategies. This forward-looking
information also includes, but is not limited to, statements
concerning expectations, beliefs, plans, goals, objectives,
assumptions and statements about possible future events,
conditions, and results of operations or performance.
Forward-looking information may contain statements with words such
as "anticipate", "believe", "expect", "plan" or similar words
suggesting future outcomes.
Undue reliance should not be placed on forward-looking
information as actual results may differ materially from the
forward-looking information. Forward-looking information is
not a guarantee of future performance. By its nature, CP's
forward-looking information involves numerous assumptions, inherent
risks and uncertainties that could cause actual results to differ
materially from the forward-looking information, including but not
limited to the following factors: changes in business strategies;
general North American and global economic, credit and business
conditions; risks in agricultural production such as weather
conditions and insect populations; the availability and price of
energy commodities; the effects of competition and pricing
pressures; industry capacity; shifts in market demand; inflation;
changes in laws and regulations, including regulation of rates;
changes in taxes and tax rates; potential increases in maintenance
and operating costs; uncertainties of investigations, proceedings
or other types of claims and litigation; labour disputes; risks and
liabilities arising from derailments; transportation of dangerous
goods; timing of completion of capital and maintenance projects;
currency and interest rate fluctuations; effects of changes in
market conditions and discount rates on the financial position of
pension plans and investments, including long-term floating rate
notes; and various events that could disrupt operations, including
severe weather, droughts, floods, avalanches and earthquakes as
well as security threats and governmental response to them, and
technological changes. The foregoing list of factors is not
exhaustive.
These and other factors are detailed from time to time in
reports filed by CP with securities regulators in Canada and the
United States. Reference should be made to
"Management's Discussion and Analysis" in CP's annual and interim
reports, Annual Information Form and Form 40-F. Readers are
cautioned not to place undue reliance on forward-looking
information. Forward-looking information is based on current
expectations, estimates and projections and it is possible that
predictions, forecasts, projections, and other forms of
forward-looking information will not be achieved by CP.
Except as required by law, CP undertakes no obligation to update
publicly or otherwise revise any forward-looking information,
whether as a result of new information, future events or
otherwise.
About Canadian Pacific
Canadian Pacific (TSX:CP)(NYSE: CP) operates a North American
transcontinental railway providing freight transportation services,
logistics solutions and supply chain expertise. Incorporating
best-in-class technology and environmental practices, CP is
re-defining itself as a modern 21st century transportation company
built on safety, service reliability and operational efficiency.
Visit www.CPonTrack.com for a copy of CP's Management Proxy
Circular and to see how Canadian Pacific is further driving
shareholder value.
SOURCE Canadian Pacific