David George-Cosh

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One of Canadian National Railway Co.'s top shareholders has retained an advisory firm to gear up for a possible proxy fight after the railroad operator's proposed voting trust to acquire Kansas City Southern (KCS) was rejected by a key U.S. regulator. 

U.K.-based hedge fund TCI Fund Management Ltd. said Tuesday it hired Kingsdale Advisors, a strategic shareholder advisory and communications firm that was retained by Bill Ackman in 2012 for his proxy battle against Canadian Pacific Railway Ltd., for a potential activist campaign against Montreal-based CN. 

In addition to reiterating a call to replace CN Rail Chief Executive Officer JJ Ruest with industry veteran Jim Vena, TCI Partner and Co-Founder Chris Hohn criticized CN Rail's board composition and said that he expects to requisition a special shareholders’ meeting where he will nominate at least five new directors.

"It is shocking to us that there is currently no-one on the [CN] board who has had any meaningful outside involvement, background or training in the railroad industry," Hohn said in a statement. "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."

A CN Rail spokesperson told BNN Bloomberg in an emailed statement that the company is aware of TCI's statement and will make any future decisions "in the interest of all of our shareholders."

Last month, TCI disclosed it increased its investment in CN Rail to 5.2 per cent - valued at US$4 billion - ahead of a key ruling from the U.S. Surface Transportation Board that determined CN's proposed voting trust tied to a US$30-billion takeover of KCS wasn't in the public interest. TCI is also a major shareholder in CP Rail, with an 8.2 per cent stake in that company. 

On Saturday, KCS said its board has engaged with CP Rail on its US$27-billion offer that "could reasonably be expected to lead to a 'Company Superior Proposal'" as defined by its merger agreement with CN Rail. 

CP Rail has given KCS until Sept. 12 to make a decision on its offer, while KCS adjourned a shareholder meeting to Sept. 24 to vote on the offer that its board deems to be superior.