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Canadian Pacific demands Ackman retraction

by Lou Whiteman  |  Published April 27, 2012 at 12:33 PM
CanadianPacific_227x128.jpgThe war of words between Canadian Pacific Railway Ltd. and hedge fund manager Bill Ackman intensified Friday with the company's chairman demanding Ackman take back "outrageous" statements claiming the railroad manipulated its latest earnings report.

CP chairman John Cleghorn in a letter to Ackman balked at the investor's claims, made in Monday interviews, that the railroad had boosted its operating ratio by not including executive bonuses in the calculations. Cleghorn said that in the subsequent days Canadian Pacific CFO Kathryn McQuade made herself available and spoke to representatives of Ackman's Pershing Square Capital Management LP to show that accruals for bonuses were properly made and fully recorded.

Reiterating comments by board audit committee chairman Dick Kelly, Cleghorn wrote that "it is outrageous for Mr. Ackman to make the accusations he did."

The letter is the latest in an increasingly hostile tangle between the two sides ahead of Canadian Pacific's May 17 annual meeting. New York-based Pershing Square, owner of about 14% of Canadian Pacific's shares, has proposed a slate of directors to Canadian Pacific's board as the first step toward overhauling management and installing former Canadian National Railway Co. executive Hunter Harrison as CEO.

The company has countered that a change in management would threaten the railroad's internal turnaround plan, and has warned that customers would flee in droves if Harrison was named CEO.

CP earlier this week reported a first-quarter profit of C$142 million ($144 million) on sales of C$1.37 billion, besting its C$34 million profit on sales of C$1.16 billion during the same quarter a year prior. Ackman in a correspondence with shareholders following the results said the earnings benefited from an improving economy and a mild winter, adding the comments about bonus calculations during interviews with Business News Network and CBC News.

The railroad got more bad news Friday when members of the Teamsters Canada Rail Conference voted overwhelmingly to support a strike, if necessary, should a new labor deal not be reached by May 22. The teamsters represent more than 5,000 conductors, engineers and rail traffic controllers.

Canadian Pacific said they "remain optimistic" that a negotiated settlement can be reached before the deadline.

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