Pershing Square Capital Management, controlled by Bill Ackman, bought 12.2% of Canadian Pacific Railway Ltd. That stake is worth about $1.3 billion. Fred Green, CP’s CEO, can’t be a very happy man tonight.
Wow, you published this news before I saw it on Canadian web sites.
A 12.2% stake is huge in terms of CP’s history. Their shares have always been very widely distributed in the UK, the US, and Canada.
I’m very curious to see what this outfit thinks it can bring to CP’s operation. Once they realize they can’t build a tunnel from Calgary to Vancouver, they may tire of their new investment.
I could go on about mistakes made back to the late 19th Century, but since financial types historical perspective reaches back almost through the last two fiscal quarters, I’m not sure what earth shaking changes they intend to make.
I will be watching with great curiosity and interest.
Bruce
I fear for companies every time I hear of a ‘money firm’ buying a signifigant stake in them. Money firms want to make money - not run ongoing businesses. Loot the cash and leave the shell.
This could be different … but!
Well he will have a harder time looting and running with a railway company but, Bill Ackman isn’t one to sit back like Warren Buffet.
I first saw the news here;
Hedge funds buying into a operating entity with their avowed aim of ‘increased shareholder return’ scares me for the continued operational health of that entity. Hedge funds, by an large, are only concerned with how much money they can extract form the entity and how soon they can do it.
It is amazing how little coverage this deal is receiving in the Canadian media. Apparently, the reporters do not realize how few times in CP’s history anyone has amassed over 10% of the shares. I guess 12.2% doesn’t seem to register with them. And an American investor at that.
The one story I did find in the Globe and Mail stated that Pershing Square had taken positions in Sears Canada and Canadian Tire. I don’t know any employees of these companies, but as a customer of both I have no complaints.
Bruce
BaltACD:
This sort of has similarities to the probems that CSX experienced with the buy-in of the Children’s Investment Master Fund move on the CSX Corp.
“Children’s Fund Lectures CSX”
http://www.forbes.com/2007/10/16/csx-childrens-fund-markets-equity-
Like many of these cases it wound up being adjudicated in the courts:
A couple of pertinent links:
http://blogs.wsj.com/law/2008/06/12/judge-kaplan-reprimands-hedge-funds-in-takeover-battle-with-csx/
and finally: http://www.internationallawoffice.com/newsletters/detail.aspx?g=c7107bc3-2826-42c6-9b66-a87933ece1b4
and a quote from the link provided by Baltacd:
“FTL:”…Canadian Pacific Railway Ltd. (CP) may face pressure to sell the company after William Ackman’s Pershing Square Capital Management LP bought a 12.2 percent stake and said it expects to hold talks with management.
Warren Buffett’s Berkshire Hathaway Inc. (BRK/A), owner of Burlington Northern Santa Fe, may be a buyer, Peter Nesvold, a Jefferies & Co. analyst, said in a note today. RBC Capital Markets’ Walter Spracklin said an acquirer such as a Canadian pension fund would be more likely than another railroad…"
This is the direction I had speculated this stock purchase in CPR might be heading with thecomment about the Children’s Fund envolvement at CSX…
Will CPR acquiesce or try and fight it ( utilize the financial ‘Poison Pill’ strategy. An American investor making a ‘run’ at a Canadian Icon? [ The reverse situation of the CN buy out of the IC.]
It will be of interest her
Interesting, what does BNSF gain by purchasing CP? Access to Canadian markets sure, but I can’t imagine that the transcon would be of any interest to them and certainly DME and the potential route to the powder river is not compelling.
I would think that the STB assuming they were doing their job would have to at least think very hard about this were it to be suggested.
The STB’s reach doesn’t extend into Canada. They would have no say on the sale of a Canadian company to Pershing Square, or any other company. However if operations of the US subsidiaries Soo Line, D&H, or DM&E, were to materially change, or they were sold in whole or in part, the STB would come into play.
Here is a link from The Globe and Mail:
Bruce
Well, I was referring to the BNSF interest, so the STB certainly would come into play. Obviously as would Canada’s equivalent. The route redundancy is entirely in the midwest though.
I’m sure BNSF could see value in the D&H, but the SOO and DME far less so.
The hedge fund may well be planning relieve CP of its excess cash but it would be interesting to see how Canadian securities laws will affect this.
From where I sit (the Inland Northwest), Buffett’s interest in gaining control of CP would be all about import/export business. Over the past year, a large amount of Powder River Basin coal has been heading to Canadian ports served by CP or CN. With CP in their pockets, Buffett and Co. could maximize rail line-haul share of coal moving to Roberts Bank via either Sweetgrass, MT, or Blaine/Sumas, WA. (OK, so some of that coal logs mileage on MRL too.) Bottom line: Canadian ports are closer to Asia than American ports, and Buffett knows it.
What’s not known is whether a CP acquisition would bring and end to BNSF handing off coal to CN, or affect CP’s handing off of potash, grain, and merchandise to UP at Eastport, Idaho.
You can be sure that US Midwest Ag interests including several states will have a lot to say because of the importance of Soo Line and DM&E versus the other Class I railroads.
If Berkshire Hathaway has an interest in CP then why don’t THEY buy it? Warren Buffett is reputedly the master of recognizing an undervalued stock, yet he hasn’t made a move on CP. It is Pershing Square that has thus far purchased 12.2%… Has Buffett made any statements to sugggest BH might be interested in CP? Is there a link between Pershing Square and Buffett?
Some of that Soo territory grain heads north into Canada, west to Eastport, Idaho, and back into the U.S. where UP brings it right behind my house and on over to Northwest export docks. A BNSF/CP merger would either ignore this traffic completely, or could siphon it north and then west to Vancouver, BC.
Meanwhile, way over in the Northeast, if CP still has its D&H running rights between Buffalo and Binghamton, imagine what a certain short line could win back in the way of imported stack traffic if Buffett & Co. want a direct route for merchandise from Canadian ports to the NJ/NY metro area. Glory days for Sparta Mountain again? Stay tuned…
The STB would force divestiture of the Soo/DM&E if the CP and BNSF would merge. And the US grain would never move via Vancouver, BC. North Dakota and Minnesota Farmers and Ag companies saw what happened when Montana lost the MILW competition to BNSF. It will happen over their dead bodies in North Dakota and Minnesota.
Motley Fool
Back about 10 years ago CN and BNSF proposed a merger and it was called off. One of the provisions of the merger, if I recall correctly was that the headquarters of a Canadian company which entered into a merger HAD to remain in Canada.
Is that an accurate memory recall? If so is that still a law in Canada? If so, would that have any effect on a BNSF merger of CP? Would it even matter?
This was also discussed today on Bloomberg radio…however I received a phone call and missed the discussion. If anyone else heard it, perhaps you can summarize the discussion.
Ed