The head of Quebec’s largest fund manager is backing the board and management of Canadian National Railway Co. in their fight against an unhappy shareholder, saying they were right to attempt a takeover of Kansas City Southern even though the bid failed. 

Charles Emond, the chief executive officer of the Caisse de Depot et Placement du Quebec, said Canadian National’s top managers “actually did their homework” on the US$30 billion offer and that criticism of the railroad’s strategy by Christopher Hohn’s TCI Fund Management Ltd. isn’t justified.

“We thought it was a good deal. These kind of opportunities happen very rarely,” Emond said in an interview with Bloomberg News. “The outcome was different than expected, but they were rigorous in the process.” 

The pact failed when the U.S. Surface Transportation Board blocked Canadian National’s proposal to use a voting trust to ensure that Kansas City shareholders got paid before regulatory approvals were completed.

Emond questioned TCI’s motivation in opposing the proposed merger, noting that the London-based investment firm is also a large shareholder in Canadian National’s rival, Canadian Pacific Railway Ltd., which agreed to buy Kansas City Southern for about US$27 billion. 

“It’s pretty rare you actually see an activist sitting on both sides of the trade with two potential buyers. So one has to understand or question what are the real motivations here,” Emond said.

TCI owns a 8.3 per cent stake in Canadian Pacific valued at US$3.6 billion, according to data compiled by Bloomberg. It owns 5.2 per cent of Canadian National, a stake valued around US$4.2 billion.  

A representative for TCI wasn’t immediately available to comment. 

Caisse owns 1.7 per cent of Canadian National and less than 0.1 per cent of Canadian Pacific, according to data compiled by Bloomberg.

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Hohn’s firm argued that Canadian National was exposing itself to excessive financial and regulatory risk in pursuing Kansas City Southern. The fund manager has launched a proxy contest to put several new directors on the Canadian National board and oust CEO Jean-Jacques Ruest. 

The railroad responded with a plan to slash costs, become more efficient and buy back shares to boost its stock price, which has lagged behind Canadian Pacific’s by a wide margin over five- and 10-year periods. 

“From my perspective, the management team is actually quite on top of it and has a plan,” Emond said. “As to what TCI wants to do with that, we’ll see.”