One of the leading Canadian railroads, Canadian Pacific Railway Limited (CP) has announced the resignation of president and chief executive officer Fred Green after tenure of 34 years. The resignation came ahead of Canadian Pacific’sannual general meeting, which was held on May 17. Along with Fred Green, chairman John Cleghorn also stepped down from his position in the company.
Following the annual general meeting, the company announced the names of the 16 directors, including William Ackman, who will hold their positions till the next annual general meeting. Additionally, the board of directors selected Stephen Tobias, as the interim CEO. Tobias has worked with Norfolk Southern Corporation (NSC) as vice chairperson and chief operations officer and has spent nearly 40 years in the industry. The board also selected Madeleine Paquin as the acting chairman of the company.
Given the managment changes in Canadian Pacific, we believe the railroad’s fight with its eminent investor, Ackman has finally reached a settlement. In January, Ackman, who owns approximately 12% stakes in Canadian Pacific, proposed a plan to replace CEO Fred Green with Hunter Harrison, former CEO of rival Canadian National (CNI). Ackman’s policy to bring improvements in Canadian Pacific beginning with the change in CEO was, however, condemned by the board of directors.
Management stated that the company, under the directions Fred Green, has been working towards successful execution of it Multi-Year Plan that endorses volume growth, network expansion and costs control measures that could drive operating ratio in the low 70s in next three years.
On the basis of these growth goals, the company has so far realized significant synergies evident by improvement in operating ratio compared to 2010 results despite a slowing economy. On continued implementation of the long-term plan, management expects further improvements in Canadian Pacific’s financial performance.
However, we believe that the resignation of Fred Green and changes in board members reflect the faith of shareholders on Ackman for turning around the fate of the company. Additionally, it also paves the way for Hunter Harrison as the next CEO of Canadian Pacific as desired by Ackman.
Consequently, we have a Neutral recommendation on Canadian Pacific. For the short term (1-3 months), the company has a Zacks #2 Rank (Buy).
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