Activist investor courting former CN head Hunter Harrison to lead CP
Hunter Harrison, the former head of Canadian National Railway Co., has been approached as a possible candidate to take over the helm of his former rival, Canadian Pacific Railway Ltd. and is apparently receptive to the move, sources familiar with the plan have confirmed.
Shares in CP were up 4% in early morning trading to $69.16 a share on the Toronto Stock Exchange as of 9:41 a.m.
Under the terms of the proposal being brought forth by activist shareholder, Bill Ackman, Mr. Harrison would replace Fred Green as chief executive, subject to CP’s board approval and an acceptable contract being negotiated by both parties.
But sources have said that if the transition were to occur, it would move quickly, and likely happen within the next few weeks if it does.
Mr. Harrison has a non-compete contract with CN that prevents him from joining his former rival until the end of this month stemming back from his retirement from CN at the end of 2009.
Mr. Harrison, 67, has shifted his attention since to his horse stable business, and could not be reached for comment Friday. But those familiar with the plan say there has been some initial discussions with him and that there is a “very high probability” that he would take the position at CP, assuming the terms were right and the plan wins board approval.
Mr. Harrison has garnered an admirable reputation in the rail business as a hard-nosed operator with his so-called “precision railroading.” He joined CN in 1998 as its head of operations after his Illinois Central railway was gobbled up by the larger railroad. He took over as CEO in 2003, and managed to turnaround CN from a once-bloated former crown corporation to the leanest of North America’s top tier railways.
CN’s operating ratio — an important gauge of profitability measuring operating costs as a percentage of revenue — fell from the mid-80s when joined to an industry-leading 67% at the point of his retirement. The lower the operating ratio the better.
By contrast, at the end of the third quarter of 2011, CP, which has been suffering operational issues all year, had an operating ratio of 82.4% year to date.
CP has taken some steps in recent months to improve its operations in the winter months by adding more locomotives and building additional slack in its network to deal with disruptions. It has also added its former head of operations, Ed Harris, who is also the former head of operations for CN, to its board.
But positioning Mr. Harrison at the helm of CP is the lynchpin of a turnaround plan led by Mr. Ackman. His Pershing Square Capital Management has been building a position in CP in recent months and now holds slightly more than 14% of the company. Mr. Ackman has said he believes CP is undervalued and has not done all it can do to run its network more efficiently under its current leadership.
Neither CP or Mr. Ackman would comment on the news.