David George-Cosh

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Canadian National Railway Co. said in a letter to shareholders Tuesday that a proxy battle led by a U.K.-based hedge fund is a "conflicted and dangerous campaign" and accused the activist of not working in the best interests of other investors. 

The letter comes as a response to TCI Fund Management Ltd.'s attempt to overhaul CN’s board of directors and ultimately bring in industry veteran Jim Vena as the company’s next chief executive.

"As you are no doubt aware by now, a U.K.-based hedge fund called TCI recently increased its stake in CN so that it could launch a hostile effort to replace four of the 10 independent directors on our board, and dictate the selection of our CEO," according to the letter, which was signed by the company's board of directors. 

"We believe that as you come to learn more about TCI and its plans for CN, you will see that its motives are highly suspect and its approach to railroading is outdated, myopic and destructive to longer term value. We also think you will come to share our view that it would be a mistake to cede effective control of CN to a foreign hedge fund that is also the largest shareholder of our most direct competitor."

TCI owns 5.3 per cent of CN Rail and is the second-largest shareholder in the railroad. It also owns more than eight per cent of Canadian Pacific Railway Ltd. A special shareholder meeting address TCI's demands is scheduled for March 22.

A TCI representative wasn't immediately available for comment.

CN announced last month that its chief executive officer, Jean-Jacques Ruest, plans to retire as early as January as the rail operator looks to move forward on a strategic plan aimed at addressing some of its investors' concerns about its operations while sidestepping TCI's attempt to replace directors.

Those plans include raising its operating income by $700 million and boosting its earnings per share 20 per cent next year while targeting an operating ratio of 57 per cent by next year.

While TCI released its own plan for CN Rail to become a more efficient operator, the company said in the letter on Tuesday that the hedge fund presented a "so-called plan that wouldn’t survive 15 minutes in the CN – or any – boardroom." CN Rail also said TCI's plan lacks "any substantive detail on what it means, how it would be implemented or what kind of performance customers and shareholders could expect."