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Activist investor Ackman unloads $835-million CP stake

Bill Ackman, CEO of Pershing Square Capital Management.


Pershing Square Capital Management LP has cashed in about a third of its stake in Canadian Pacific Railway Ltd., a year and a half after activist investor Bill Ackman spearheaded a gruelling corporate victory over the Calgary-based freight carrier.

Pershing Square, which began acquiring CP shares in September 2011 and subsequently became the railway's largest shareholder with a 14.2-per-cent stake, has now sold seven million of its more than 24 million shares in the Canadian company.

CP, which reported a record quarterly profit on Wednesday, said Thursday that the New York-based hedge fund has sold 5.96 million CP shares for about $140.00 (U.S.) a share, bringing the total divestment so far to seven million shares. CP stock closed Thursday at $147.95 Canadian a share – more than triple their level when Pershing Square began building up its CP stake.

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In May of 2012, Pershing Square won a proxy fight that forced Fred Green to resign as CP's chief executive officer and also led to the ouster of then-CP chairman John Cleghorn and several other CP directors. Hunter Harrison, the former CEO at Montreal-based Canadian National Railway Co., took over as CP's top executive in June of 2012.

Mr. Harrison has led a turnaround at CP, narrowing the efficiency gap between it and rival CN. Analysts have been surprised at the pace of CP's improvements, including achieving faster average train speeds and reducing the time that locomotives are parked in rail yards.

In announcing a third-quarter profit of $324-million, CP also said its operating ratio – a key indicator of efficiency that measures costs as a percentage of revenue – fell to 65.9 per cent in the quarter.

Mr. Harrison has a four-year mandate at CP. Asked if he is prepared to retire earlier than anticipated given the sparkling results, Mr. Harrison told analysts: "We're on a pretty nice roll here. I don't want to walk out too soon."

Mr. Ackman had signalled in June that Pershing Square intended to unload a chunk of its CP stock. "Our stake in CP has grown to approximately 26 per cent of the combined assets of our funds," he said in a statement at the time. "Given that increased concentration, portfolio management considerations have driven our decision to trim our holdings. Even after these sales, we expect to remain CP's largest shareholder and for CP to remain one of our largest investments."

While winning the proxy contest against CP proved to be the financial highlight of 2012 for Mr. Ackman, he has had a rough ride in leading Pershing Square's bet against Herbalife Ltd. Pershing Square has taken a short position against Herbalife, meaning the strategy will only be profitable if Herbalife's share price falls. Instead, Herbalife has rallied since last December, when Mr. Ackman called Herbalife's approach to selling nutritional supplements a "pyramid scheme" – an allegation that the company vehemently denies.

In a joint statement Thursday disclosing Pershing Square's divestment of seven million CP shares, both firms noted that CP "is not selling any common shares in the offering and will not receive any of the proceeds from the offering of common shares by the funds managed by Pershing Square."

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Citigroup analyst Christian Wetherbee said Mr. Harrison has been aggressively pursuing changes at CP, including increasing train lengths.

"Coupled with very strong operating results in the third quarter, we see a path laid out for another leg higher in CP's stock price over the next several quarters," he said in a research note Wednesday.

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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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