LONDON — Activist investor TCI Fund Management says it will call for a special meeting of Canadian National shareholders to nominate at least five new members of the board of directors, and has hired shareholder advisory and communications firm Kingsdale Advisors to help halt CN’s pursuit of Kansas City Southern.
Chris Hohn, TCI founder and portfolio manager, said in a press release that CN’s “copycat” bid for KCS, along with “CN’s continued operational under performance, manes the case for change compelling and clear.
“It is shocking to us that there is currently no one on the board who has had any meaningful outside involvement, background, or training in the railroad industry. The bid for KCS exposed a basic misunderstanding of the industry and the regulatory environment. The CN board must therefore take full responsibility for its egregious failure of oversight in sanctioning the bid.”
TCI said it had engaged Kingsdale to provide advice, assist in engaging shareholders, and lead TCI’s efforts in a proxy fight, if one develops. Kingsdale, the release notes, previously represented activist investor Bill Ackman in his successful bid to change the board at Canadian Pacific in 2012.
TCI said in a May letter that it would seek the removal of CN CEO JJ Ruest, along with board chairman Robert Pace, if the CN bid for KCS failed [see “Major CN investor urges railway to drop KCS bid …,” Trains News Wire, May 18, 2021.] It subsequently became the railroad’s second largest stockholder, and — after the Surface Transportation Board denied a voting trust during the CN-KCS merger process — called for the resignation of Ruest and Pace [see “Major CN investor calls for ouster of CEO …,” News Wire, Aug. 31, 2021].
In light of the STB’s ruling on the CN-KCS voting trust, the KCS board met Saturday and said it would once again enter merger discussions with Canadian Pacific, saying CP was in position to provide a “company superior proposal” [see “Kansas City Southern moves toward a merger agreement with Canadian Pacific,” News Wire, Sept. 4, 2021].
Frankly, I struggle to figure out just what magic Vena is supposed to bring with him to restore this “operational excellence” Hohn spouts off about. CN is already using all of the supposed principles of psr including reduced switching frequency, longer trains with distributed power, fewer people and so on. The one aspect that has changed under JJ is expanded capital spending to improve capacity and fluidity and the acquisition of several trucking companies. Vena may shine taking a carrier like UP and running it through the psr wringer but, what new ideas does he have for CN. CN shareholders would be wise to raise this question and not fall for any of TCI’s hedge-speak BS.
Mr. Ruest’s background is marketing vs. operations. I think the TCI position is to whack him for the KCS fiasco, and by proposing Mr. Vena they can characterize it as “bringing in an experienced man to clean up operations…” – so a bit of misdirection there. But no surprise because when TCI previously criticized the KCS merger attempt they clearly indicated Messrs. Ruest and Pace would have to go if it did not work out. And here we are.
If KCS decides to go with CP, does that put KCS on the hook for a payment to CN for breaking the KCS-CN deal? As far as I know CN has not decided to break the deal which would trigger the $1 billion payment from CN to KCS. However this would seem to be the likely result of the TCI initiative. So how is it determined “who pays whom” in this situation when it appears likely both sides will want to break the CN-KCS deal, now that STB has made it clear that it will not be approved?
TCI knows as little about railroading as probably the members of CN’s BoD…and in all fairness the BoD doesn’t need to know anything about railroading to be effective. All they need to do is know how to select the right person for the job of CEO…it would be a mistake to get rid of Ruest, his only mistake so far has been the bid for KCS.
Unfortunately the 700 million dollar payment to KCS to break the cp deal, and the billion CN will have to pay to scratch this deal, is more than enough to make a bunch of very wealthy people upset. Maybe these same people may see the importance of putting that cash in infrastructure instead(doubtful).