~ freelance journalist

Ever since American investor William Ackman and his Pershing Square hedge fund company bought a 14.2% stake in Canadian Pacific last year, it has conducted a carefully calculated campaign to get the railway to improve its financial performance.

The campaign reached its peak in late December when the business pages of major newspapers carried stories touting how Pershing wanted former CN boss Hunter Harrison to replace CP top executive Fred Green.

Green and Harrison had their run-ins as rival CEOs before Harrison retired in 2009.

It took too many days for CP Chairman John Clegghorn to object to “erroneous” claims in the news reports, and by implication accuse Ackman of planting them.

That provoked a fast and angry response from Ackman. CP came back with a quick we stand by our story retort promising some lively board meetings. CP has already appointed two experienced American railway operators, Tony Ingram and Ed Harris, to its board and offered Ackman a seat. He wants two in addition to the recent appointees, who were intended to placate him.

Pershing did a credible piece of homework on CP before investing and was well aware that CP has fallen behind the other major North American railways in terms of financial performance and customer service. However, it seems Pershing may have skipped the chapter on Canada’s regulatory climate, which imposes more restraints on Canadian railways than their American counterparts.

Appointing Harrison is a crazy idea for a lot of reasons, including his non-compete clause with CN, but he has served as excellent stalking horse for Ackman who wants to shake up the CP Board and senior management.

The company has shown considerable skill in planting its side of the story among the business pages of Canadian and American newspapers.

In a letter released by CP Jan. 3, Clegghorn said it was “disappointing and highly inappropriate that Pershing Square made inaccurate comments … to advance its own objectives. We are troubled by the inaccuracies and mischaracterizations that have appeared in the media.

“CP is focused on maximizing shareholder value through an ongoing commitment to safely delivering excellent customer service and increasing asset velocity, efficiency and productivity. We are executing on our plan, which we believe will deliver an annual operating ratio in the low 70s in the next three years. CP has a strong management team and an independent Board made up of directors with extensive experience in railroads, energy, natural resources, food and agriculture, law, government, banking and finance.” He denied any interest in meeting Harrison and noted that Ackman has been offered a seat on the Board.

Within hours, Ackman was back with a denial that “neither I nor any representative of Pershing Square has made any inaccurate statements to the press. Your letter, however, includes a number of statements that should be corrected so that Canadian Pacific's stakeholders are fully apprised of the facts. Our plan is to transform Canadian Pacific from the worst performing railroad into one of the best by effectuating a cultural and operational transformation of Canadian Pacific that begins with a new leader.”

Seemingly unaware of the wide-spread animosity that Harrison generated among CN employees and customers during his tenure of as CEO, Ackman said, “We expect, the vast majority of the company's own employees, shareholders, analysts, and other stakeholders believe that Hunter can realize this potential if given the opportunity to instill a disciplined operating plan and performance-oriented culture with no excuses.”

Ackman said he wouldn’t sign “a standstill agreement that no other director of Canadian Pacific has been asked to sign, and which would eliminate many of our basic shareholder rights.”

Meanwhile, CN spokesman Mark Hallman told reporters that separate provisions related to Harrison's retirement benefits and pension prohibit him from competing against the railway for five years, a period that expires at the end of 2014.

The Ackman influence on CPR has become increasingly evidence in recent months as the railway has started talking about various measures it has been taking to improve its operations with new locomotives, longer trains and sidings, a better winter operations plan and new Board members with a solid railway background.

Shippers haven’t been impressed with CP’s performance in recent years. Bob Ballantyne, President of the Canadian Indiustrial Transportation Association, says CP is criticized both its poor operating performance, but “the service quality is rather low compared to CN. CP used to be reasonably good at communications, but like many things, its communications performance has deteriorated.”