Lines drawn for Canadian Pacific showdown

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A vicious months-long proxy fight over the future of Canadian Pacific Railway Ltd. culminates this week as the combatants converge on Calgary.

Investor activist Bill Ackman, the chief executive officer of Pershing Square Capital Management LP, has the momentum in the days leading up to CP's annual meeting of shareholders on Thursday – the deadline for casting votes to elect directors to the railway's 16-member board.

Mr. Ackman said last Tuesday that 36 per cent of the votes already had been cast at that time, including ballots from Pershing Square. His punch line was that an overwhelming 97 per cent of those early votes supported his dissident slate of seven nominees.

He disclosed last October that his New York-based hedge fund had become the railway's largest shareholder. Pershing Square, which began acquiring CP shares in September as the railway's stock dipped to a 52-week low, now owns a 14.2-per-cent stake in CP.

The battle intensified in late December, when it emerged that Pershing Square had enlisted former Canadian National Railway Co. boss Hunter Harrison to its campaign to oust current CP chief executive officer Fred Green.

Mr. Ackman argues that CP is an underperforming company that needs Mr. Harrison to take over to spearhead a turnaround strategy, but CP chairman John Cleghorn counters that Mr. Green already possesses the skills to implement the Calgary-based railway's recovery plans.

Mr. Cleghorn and Mr. Green are in danger of losing their seats on the CP board, based on early voting results.

Three major proxy advisory firms threw their support behind Pershing Square's full slate over the past two weeks: Institutional Shareholder Services Inc., Glass Lewis & Co. and Egan-Jones Ratings Co.

ISS recommends that votes be withheld from six CP directors, notably Mr. Green, Mr. Cleghorn, former Westcoast Energy Inc. CEO Michael Phelps, former Shell Canada Ltd. CEO Tim Faithfull, former Ipsco Inc. CEO Roger Phillips and former CN executive vice-president Ed Harris.

Glass Lewis agreed with ISS on withholding votes for those six CP directors and went even further, adding two others to its list of CP directors not to support. Egan-Jones recommends that CP shareholders withhold votes from all 15 current railway directors.

CP, which believes the proxy advisory firms reached the wrong conclusions, is holding out hope that shareholders will select individuals from the competing slates instead of wholeheartedly backing Pershing Square and refusing to back any CP nominees.

At the Sheraton Suites Eau Claire in Calgary on Thursday, CP acknowledges that it will be a gathering to remember.

"The upcoming annual meeting of CP is one of the most significant in the company's history," CP spokesman Ed Greenberg said. "It is vitally important to the future of CP that shareholders vote for the best 16 individuals to comprise the CP board of directors."

On Friday, the Canada Pension Plan Investment Board, which controlled more than 1.36 million CP shares on the March 22 record date for voting eligibility, became the latest shareholder to support Pershing Square's seven nominees and withhold voting for any CP directors.

Pershing Square is proposing to elect a minority slate of alternative directors at CP: Mr. Ackman and his Pershing Square colleague Paul Hilal, former Norfolk Southern Corp. vice-chairman Stephen Tobias, corporate restructuring specialist Gary Colter, former Onex Corp. executive Anthony Melman, Just Energy Group Inc. executive chairwoman Rebecca MacDonald and businessman Paul Haggis, a former head of Alberta Treasury Branches.