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Noah Zivitz

Managing Editor, BNN Bloomberg


Investors in Canada’s dominant rail companies would be forgiven for having a sense of déjà vu after an activist investor that has been circling Canadian National Railway Ltd. made good on its threat to launch a proxy battle Monday.

In a release, TCI Fund Management Ltd. announced plans to formally nominate four directors to CN’s board and pinpointed the person it wants to see as CN’s next CEO. It’s shaping up to be reminiscent of one of the highest-profile, most contentious activist campaigns in Corporate Canada’s history when Bill Ackman’s Pershing Square Capital Management LP’s took a stake in Canadian Pacific Railway in 2011 and ultimately launched a proxy fight that led to a boardroom and management overhaul.

TCI said it plans to nominate former CN Vice-President of Safety Paul Miller, former Union Pacific Corp. Chief Financial Officer Rob Knight, former CN Director Gilbert Lamphere, and former Credit Suisse Transportation Analyst Allison Landry to CN’s board. It said it would seek to make room for them by removing existing directors Robert Pace (who serves as CN’s chairman), Kevin Lynch, James O’Connor, and Laura Stein. 

TCI, which ranks as CN’s second-largest shareholder with a 5.2 per cent stake, said if investors elect its nominees to the board, they would then seek to replace Chief Executive Officer Jean-Jacques Ruest with rail industry veteran Jim Vena, who previously served as CN’s chief operating officer. 

“CN is a great company, and it owns a unique asset – the best rail network in North America. However, the business has been underperforming for too long, so change is required. We did not seek a proxy fight, but without urgent action CN's operational and financial performance will continue to lag its peers under a Board that lacks the right railroad experience and operational expertise,” said TCI Founder and Managing Partner Chris Hohn in a release. 

The launch of the activist campaign by TCI comes two weeks after the U.S. Surface Transportation Board stymied CN’s attempt to purchase Kansas City Southern by rejecting its request for a voting trust that would be crucial to going ahead with the deal. TCI has repeatedly blasted CN’s management and board for how the takeover attempt was handled. 

On Sunday, Kansas City Southern said its board formally determined that a rival takeover offer by Canadian Pacific Railway is superior, which left CN with five days to come back to the table with proposed amendments.

“I think the story has really turned for CN Rail,” said Baskin Wealth Management Chief Investment Officer Barry Schwartz, who owns CN shares for clients and personally, in an interview.

“It's going to be sitting pretty I hope -- god forbid that they up their (Kansas City Southern) bid, I think it's over and done with. … (CN will) have a clean balance sheet and there's going to be a proxy fight but it will be very interesting to watch and we're not selling any shares.”