From the article:
“The key questions on the minds of investors will be to what extent Pershing Square will be able to trigger significant change,” says Walter Spracklin of RBC Capital Markets in Toronto"
I’m not an investor, but I have similar thoughts. What magic is the new investment group going to pull out of air, that makes everything more profitable? And if it’s that easy, why didn’t the railroad guys aleady do it?
Having followed The Children’s Fund foray into CSX - the impression of the ideas that TCF were trying to push down CSX’s throat was that they had been formulated in a Holiday Inn after viewing at train running under a Christmas tree.
Railroads have a high degree of fixed plant investment in their cost structure and have all the agility of the QE 2 in moving about the financial oceans. The hedge fund mentality which is accustomed to moving millions and billions of dollars about with the click of a mouse, finds dealing with fixed railroad investment something they are ill prepared to deal with in a rational constructive manner, especially for the railroad to continue to operate safely and profitably.
The people running today’s class I railroads are not dumb or incompetent. If changes that hedge funds think are required were a profitable ‘for the railroad’ as the funds think … they you already have been implemented.
[quote user=“Murphy Siding”]
BaltACD:
Motley Fool
From the article:
“The key questions on the minds of investors will be to what extent Pershing Square will be able to trigger significant change,” says Walter Spracklin of RBC Capital Markets in Toronto"
They may not see any magic…just room for improvement on the management side. CP’s numbers aren’t as good as its competitors, and the hedge fund people might have concluded (rightly or wrongly) that THAT difference is attributable to the difference in the quality of the management when compared with its direct competitor CN or the industry at large. CP is fortunate to have a relatively simple network consisting of long hauls and serving large markets. Yet it lags behind other carriers like NS who have a much more complex network, shorter hauls, and a more dispersed service area. In all probability Ackman looked at the big picture and picked the industry laggard i.e. the one road that could be improved upon by making changes in the management…no magic required. Moreover, there would be no point in buying something that can’t be improved upon and sold at a profit.
[quote user=“MP173”]
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
Part of the deal when CN was privitized was that the headquarters would stay in Canada, I think it has to be Montreal. So when the BNSF-CN merger was proposed the headquarters was to be Montreal.
It is not a law that headquarters have to be in Canada.
Maybe I’m being a little naive here, but I wouldn’t yet completely dismiss the possibility that this hedge-fund investment in CP was made for one of the 3 reasons mentioned in the “Motley Fool” article linked above - to participate in the longer-term increase in value of the company. Rails are a good market sector right now - better than most - and buying CP’s shares sure beats buying more European distressed Euro debt as other hedge funds have been doing (compare with yesterday’s collapse of MF Global Holdings Ltd. . . . [:-^] ).
But in the event this is a typical corporate ‘raid’ to loot CP’s cash holdings - Hah ! Too late, that horse is already out of the barn ! Following are some details:
CP’s “Cash & Short Term Investments” are currently (Sept. 30, 2011) about CDN$97 million per Google Finance’s “Balance Sheet” webpage (at: http://www.google.com/finance?q=NYSE%3ACP&fstype=ii&hl=en# ), down CDN$263.6 million = 73% from a recent high of CDN$360.6 million 9 months ago on Dec. 31, 2010, CDN$310.5 million 6 months ago on March 31, 2011, and CDN$267.8 million 3 months ago on June 30, 2011. The “Cash Flow” webpage shows why and how - over the last 3 months, every dollar generated by “Operating Activities” and then about 5% more was used for “Capital Expenditures”. In addition, CP has used another CDN$272.7 million of cash to pay dividends, and pay off debt in nearly equal amounts. So there’s not much cash left to loot right now.
(Ed/ MP173 and anyone else here who is financially oriented, please feel free to add/ correct/ comment on the above as you see fit.)
Here’s some free advice for CP’s management - taken from ConRail’s/ L. Stanley Crane’s ‘playbook’ in fending off attempt
Some lower level Canadian CP management types, have characterized Calgary top level management as more hide bound than most. I was told that Ed Harris, formerly of CN under EHH, who was brought out of retirement to improve CP’s operations as EVP-O, quit after not receiving backing from the CEO to make significant changes. Whether this was true, I can’t say. But I do know that morale amongst lower level Employees isn’t very high. Also local carload customers have started to look for ways to avoid using CP as Car Dwell times and Velocity are not very good compared to other Class Is.
Although I retired a few years back, from acquaintances still working I have had more or less the same impression. Except the term “hide bound” may not be the most suitable. The way I hear it, many in the more senior management levels seem to be busy playing management games that do not help the basic business they purport to be managing. The result is, as you say, terrible morale in those closer to reality. Some are hopeful that this could trigger a much needed change for the better.
At this point, it might be interesting to get some input from some Posters here; who are connected to CPR or work for them. I think we have a couple of folks that fall into that category around here from time to time?
Fred Frailey has written an article about this over in the blog section. Here is the link:
Over the past week I have come to agree with Frailey’s passive investment theory. Even activist investors need to put some of their funds into a safer investment, especially as I think there is another recession around the corner.
Canadian Pacific, if nothing else has always been a safe investment. When the current Beaver Shield logo was designed, the year 1881 was pointedly put on it for a reason. CP is the only North American Class 1 railway not to have gone through bankruptcy since that time. And it only ever missed paying a dividend in 1932. A record of staid stability is not the worst thing in today’s turbulent economic times.
I am sorry to hear of some of the comments made by John (cx500) here and on other forums.
Bruce
I had posted the following request earlier on this Thread:
At this point, it might be interesting to get some input from some Posters here; who are connected to CPR or work for them.&n
I can’t say that I am happy about the situation either, yet pretending that everything is wonderful when they aren’t is no service. There are a number of dedicated long service employees who have become so disillusioned that they plan to request retirement at the first opportunity. Organizational restructurings have continued on a regular basis since I retired, rather like shuffling deck chairs on the Titanic (and just as effective). Meanwhile those few who know how to actually keep the railway running struggle as best they can.
“Sweating the assets” (one of the buzzwords) is all very well, but that can backfire. To continue the simile, CP has been left on the sidelines gasping for breath when a significant new traffic flow was up for grabs. A major decline in customer satisfaction is another indication that maybe sweat leaves a stench.
[quote user=“samfp1943”]
AgentKid:
Fred Frailey has written an article about this over in the blog section. Here is the link:
Over the past week I have come to agree with Frailey’s passive investment theory. Even activist investors need to put some of their funds into a safer investment, especially as I think there is another recession around the corner.
Canadian Pacific, if nothing else has always been a safe investment. When the current Beaver Shield logo was designed, the year 1881 was pointedly put on it for a reason. CP is the only North American Class 1 railway not to have gone through bankruptcy since that time. And it only ever missed paying a dividend in 1932. A record of staid stability is not the worst thing in today’s turbulent economic times.
I am sorry to hear of some of the comments made by John (cx500) here and on other forums.
Bruce
I had posted the following request earlier on this Thread:
When this news appeared, I took a look at the stock wondering if there was the opportunity to piggy-back on whatever change was coming. However, it had already risen 25% in the month of October. At close to $65, it was getting too near its pre-trouble price to see a whole lot of opportunity. That, combined with a dividend of less than 2%, led me to take a pass.
Obviously we are not the only ones who think that top management at CP is the problem.
There’s and article on the Opinion section of the Wall Street Journal’s website called “The Mortgage Hangover” written by Nicole Gelinas, that describes a similar fiasco with a California based real estate firm trying to increase profitability with a rent controlled apartment building in the Bronx. Similar to TCF getting into CSX, you had a group of investment managers who had no clue of the specifics with respect to their investment - though TCF did make out a bit better.
Hedge funds come across as being primarily interested in short term gains and as you said, are not well suited for dealing with industries that plan a decade or more ahead. They also have the destructive habit of making money by piling on debt (e.g. Simmons mattresses).
Sounds like CP management needs a dose of what the “Chessie Mafia” at CSX got in the last few years.