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Two more advisory firms back Ackman's CP picks

More than a century after the owners of Canadian Pacific Railway Ltd. turned to a U.S. rail expert to salvage a troubled startup, another American businessman appears poised to turn around the embattled company.

In 1881, CP's owners hired William Cornelius Van Horne to rescue a fledgling railway plagued with construction problems to successfully build a ribbon of steel across a new nation. Next week, according to interviews with some of CP's largest shareholders and people close to the railway, it appears almost certain that New York activist Bill Ackman will win sufficient support to elect more than a majority of the seven dissident directors he is backing in a proxy vote set for May 17.

"The CP team is pretty frustrated that the Ackman sound and light show has won investors over," said one person close to the company who declined to be identified.

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"There is a feeling of inevitability about this now," said another CP source. "Now it is just a matter of how bad it is going to be."

If recommendations from three influential proxy advisers are any indication, the CP proxy contest could result in one of the worst boardroom routs seen at a major company. On Wednesday, advisory firms Glass Lewis & Co. and Egan-Jones echoed an earlier report from Institutional Investor Services by recommending that shareholders vote for all seven directors backed by Mr. Ackman's New York hedge fund, Pershing Square Capital Management.

San Francisco-based Glass Lewis said the "serial underperformance" at CP calls for a "far reaching overhaul" of the board and its senior management. Glass Lewis advised investors to withhold votes for railway chief executive officer Fred Green, chairman John Cleghorn and six other directors.

In a highly unusual move, Saline, Mich.-based Egan-Jones urged shareholders not to vote for any of the railway's incumbent directors, which includes such establishment leaders as former Suncor CEO Rick George, grain titan Hartley Richardson and former deputy prime minister John Manley.

In a statement, Mr. Ackman said: "We are unaware of so powerful and uniform an endorsement for change in the history of large cap activism."

After weeks of vigorously campaigning against Mr. Ackman's "CP Rising" campaign to win shareholder support for new management at CP, the railway adopted a more conciliatory tone Wednesday. In a statement, the company urged shareholders to vote for the 16 directors they most favored at next week's proxy vote, "including any of the Pershing Square nominees who have the skills and the experience to serve shareholders' best interests."

One person close to the railway said the statement was in part an acknowledgment that Mr. Ackman and Pershing Square have gathered substantial support for his alternative slate of directors. The source said Calgary-based CP is also seeking to counter Pershing Square's recommendation that shareholders withhold votes from CP incumbents.

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If a large number of shareholders do withhold votes, the source said, votes by Pershing Square, which owns a 14.2-per-cent stake in the company, could significantly influence which of the incumbents are elected.

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About the Author

Brent Jang is a business reporter in The Globe and Mail’s Vancouver bureau. He joined the Globe in 1995. His former positions include transportation reporter in Toronto, energy correspondent in Calgary and Western columnist for Report on Business. He holds a Bachelor of Commerce degree from the University of Alberta, where he served as Editor-in-Chief of The Gateway student newspaper. Mr. More

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