Activist investor TCI Fund Management has launched a battle for control of the Canadian National Railway Company following the railways’ seemingly failed offer to buy Kansas City Southern Railway Co.
TCI, led by British billionaire Chris Hohn, accused Canada’s largest rail carrier on Monday of being run by “incompetent” and “weak” management, and said it would soon call a special meeting of shareholders to oust president of CN, chief executive officer and other directors.
Ben Walker, a TCI partner, said the hedge fund is gaining support from other major CN shareholders in its campaign for control of the railroad boardroom. “The arguments are overwhelming,” Walker said in an interview. “Other shareholders tell us they agree with us. They contact us. “
TCI’s move comes after KCS said on Saturday it would renew takeover talks with CN rival Canadian Pacific Railway Co., canceling an earlier deal to be bought out by CN.
CN offer questioned after US rail regulator last week blocked a key element of the CN takeover. The U.S. Surface Transportation Board has rejected the Montreal-based company’s proposal to form a voting trust that would hold KCS shares pending approval of the takeover itself.
“The offer for KCS is a poor reflection of CN management and board of directors as it was obvious from the start that the offer would fail,” TCI said in a statement. Release. “It was an imitating offer that reflected defensive motivation and a lack of strategic thinking.”
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Mr Walker denounced the lack of rail experience on CN’s board of directors and said the company could face termination fees of up to $ 2 billion by pursuing a takeover that had failed. no prospect of US regulatory approval.
TCI aims to replace “at least” five of CN’s 11 directors, including Chairman Robert Pace and CEO Jean-Jacques Ruest, Walker said. “We need this number to make changes,” he said, calling it “shocking”. Robert Phillips is the only board member with experience in the rail industry other than the CEO.
Mathieu Gaudreault, a CN spokesperson, did not address questions regarding the KCS offer, the future of the company’s executives or whether CN would negotiate with TCI to avoid a vote on board members.
“CN appreciates the contribution of all of its shareholders,” said Mr. Gaudreault. “As we have done throughout the KCS process, and as we always do, we will make thoughtful decisions in the best interests of all of our shareholders and stakeholders and in accordance with our strategic priorities.”
CP CEO Keith Creel said last week that his US $ 27 billion offer for KCS expires on September 12. The Calgary Railway has already obtained STB approval for its voting trust.
Jason Seidl, a stock analyst at Cowen and Co. in New York City, said CN might increase its bid to gain support from KCS non-voting shareholders. However, “we believe it is in CN’s best interests to forgo the deal, given the clear message from STB.”
KCS accepted CN’s US $ 29.8 billion offer in May, turning its back on a March deal with CP worth about US $ 25.2 billion. CP increased its offer by US $ 2 billion in August, arguing that its proposal was the only one that would receive approval from US regulators.
TCI is CN’s second largest shareholder, with more than 5 percent of the shares outstanding, a stake worth approximately $ 4 billion. TCI is also the largest owner of CP shares, at 8 percent.
The principal shareholder of CN is Cascade Investment LLC of Bill Gates. Mr Walker said he did not discuss TCI’s Tuesday announcement with Cascade. He declined to say whether he supported CN director Justin Howell, who works for the Bill & Melinda Gates Foundation Trust. “I don’t know him,” Mr. Walker said.
A call to Cascade was not returned. Major CN shareholders declined to comment or did not respond to questions.
TCI, also known as Children’s Investment Fund Management, was founded by Mr. Hohn in 2003 and manages over US $ 40 billion in assets. In 2008, the hedge fund teamed up with 3G Capital Partners to overthrow the board of directors of US railroad CSX Corp., replacing four of 12 directors.
Investors accused CSX of mismanagement and lagging financial performance. CN faces similar charges.
TCI recently increased its stake in CN in order to be able to call a special meeting of shareholders. In a presentation it sent to CN’s board of directors, TCI said CN is the only major railroad in North America that has not increased operating profits since 2016.
CN’s operating ratio, an indicator of expenses to sales that is closely watched by railways and investors, fell to the industry’s worst since the best since 2017. Since 2016, CN revenues have grown 1.4%, while expenses have increased 18%. “CN is the only railroad that remains below pre-pandemic levels on all key parameters,” TCI said.
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