Entreprise

Ackman’s Perthing Square is back in the Pacific Canada.

The Canadian Pacific Railway locomotive will tow the train in Calgary, Alberta, Canada, on Monday, March 22, 2021.

Alex Ramadan | Bloomberg | Getty Images

Company: Canada Pacific (CP)

jobs: The Canadian Pacific Railway owns and operates the transcontinental freight railroad in Canada and the United States. The company transports bulk cargo such as grains, coal, potatoes, fertilizers and sulfur. Energy, Chemicals, Plastics, Metals and Canadian Pacific Railway also carry out intermodal transportation, including retail goods, in international containers. The company provides rail and intermodal transportation services through its approximately 13,000-mile network serving business centers in Quebec and British Columbia. Canada, and the northeastern and midwestern regions of the United States. The merger with Southern Kansas City will give Canada Pacific access to Mexico and build the first single-track rail network connecting the United States, Mexico and Canada.

Stock market value: $ 72.3 billion ($ 77.63 per share)

Activist: Persing Square

Ownership ratio: 1.59%

Average cost: Not applicable

Activist’s commentary: Operated by Bill Ackman, Persing Square is a highly respected and successful activist. The company does not occupy many activist positions compared to other activists, but its position is generally large, well thought out and fully committed. Square typically looks for: (i) high-quality business, (ii) simple, predictable, cash-flow-generating, durable growth concepts, (iii) opportunities to catalyze: business. Pershing Square was previously a widely announced activist campaign in the Pacific Canada between 2011 and 2016. The S & P 500 generated 70.13% of the revenue, compared to 153.30% in the 13D situation.

what’s happening?

Behind the scenes

Persing Square previously submitted the 13D in the Pacific Canada on October 28, 2011, making it one of the most successful and important activist campaigns in the last 20 years. There are three main elements to an activist campaign. (I) Creating a plan To create value, (ii) be in a position to execute the plan, and (iii) execute the plan successfully. Persing Square was impressed with all the accounts. They have created a plan to replace the CEO with Hunter Harrison, the railroad “Michael Jordan.” CEO. At that time, in a very difficult situation, a long and fierce deputy battle was fought, eventually replacing most of the board. In addition, the execution of the plan went as expected or better than expected, creating great value for shareholders. Persing Square reluctantly closed the investment with a 153% return in 2016 when shares were trading at $ 27.28 per share (adjusted for splits) due to numerous redemption requests associated with other Persing Square investments. Did.

Their fingerprints are everywhere in the current company. Since then, they have been monitoring Canada Pacific and looking for a good entry point for investment. Since then, this has never happened, as the company’s stock has risen almost straight. The acquisition of the Pacific / Southern Kansas City merger has been completed, but the merger will be subject to final approval by the Surface Transportation Board, which is expected to be approved by the fourth quarter of 2022.

The Canadian Pacific Railway is doing very well on its own and has been commanded by Hunter Harrison’s mentee Keith Creel since Harrison’s departure. Creel has done a great job of growing and running the company efficiently. KCS will create the only railroad that travels between Mexico, the United States and Canada, creating revenue growth and efficiency opportunities. In terms of efficiency, Creel applies the same discipline that he applied in CP, KCS.

But the better opportunity is in terms of profitability. Most importantly, having a single railroad that can efficiently move goods from Canada to Mexico is a great advantage in attracting customers. However, some other tailwinds have been highlighted and expanded. First, the United States is pushing to improve its infrastructure, which should increase the transportation of goods nationwide. Second, due to the historically high levels of gas, companies are third, North American companies are already discouraged from relying on China as distribution partners and are trying to make their supply chains more accessible. increase. The war in Ukraine and the potential for China to move forward In the future, Taiwan has greatly heightened this concern.

In addition, railroads are an energy-efficient way to transport goods, so there are ESG benefits here. According to the American Railroads Association, using 50 rail vehicles instead of trucks to transport food from California to Ohio would cause 126 trucks to get off the road, and 391.5 tons of carbon dioxide would be in the atmosphere when used. Will be released inside.

We expect Canada Pacific 2.0 to be very different from what we were doing for the first time. Bill Ackman likes this CEO. In fact, he has some responsibility for being there. This is very friendly and if Perthing Square sits on the board, it will support management here as a long-term investor making large investments for them. If you have the best management team in the industry, you want to add assets and revenue to it. That’s exactly what’s happening at Persing Square. In the Canadian Pacific.

Ken Squire is the founder and president of 13D Monitor, an institutional research service for shareholder activists, and the founder and portfolio manager of the 13D Activist Fund, an investment trust that invests in the activist 13D investment portfolio.

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