CN shareholder steps up push for board changes


Activist investor TCI Fund Management Ltd. has stepped up its push for boardroom changes at Canadian National Railway Co. after the company’s efforts to take over Kansas City Southern (KCS) hit a wall.

British-based TCI said Monday it intends to ask for a special meeting of CN Rail shareholders for the purpose of “refreshing” the railway’s board by adding four members that it has nominated.

The fund, which is also the largest shareholder of Canadian Pacific Railway Ltd., also said it has proposed Jim Vena, former chief operating officer at CN, as a potential replacement to current CEO Jean-Jacques Ruest.

The move comes a day after KCS said that a takeover bid from CP looks to be the superior proposal, after CN Rail failed to secure a key regulatory approval from the U.S. Surface Transportation Board.

KCS says it plans to terminate its deal with CN and sign a definitive agreement with CP Rail which has made a proposal valued at about US$31 billion including debt.

CP Rail chief executive Keith Creel said the railway stands ready to seal the deal with KCS.

“We are pleased to reach this important milestone and again pursue this once-in-a-lifetime partnership.”

Lack of railway knowledge

TCI managing partner Chris Hohn said the fund launched the proxy fight after CN Rail’s bid for KCS showed a “basic misunderstanding of the railroad industry.”

“The board consistently misjudged the STB and displayed flawed decision-making, committing billions of dollars to an ill-conceived pursuit of an unattainable asset. CN should focus on getting better rather than bigger.”

Hohn comments come as CN deliberates on its next move. The Montreal-based railway has five business days to make changes to its offer to win back the support of the KCS board.

CN Rail said in a release Monday that it acknowledges TCI’s announcement but that it would hold further comment until it receives and reviews a formal requisition from the fund. The railway did not comment on the latest KCS decision.

Voting trust denied

CN’s offer is valued at about US$33.6 billion including debt, but at the end of August the U.S. regulator denied the company’s use of a voting trust for the bid, saying it would be bad for competition.

CP, which is smaller and has a more limited presence in the U.S., already has approval for a voting trust.

The trust would allow KCS shareholders to be paid before the U.S. regulator completes its review of the proposed takeover.

CP Rail had signed a deal in March to buy KCS, but CN topped that offer and secured support from the KCS board for its proposal in May.

When KCS dropped the CP Rail deal in May, CN agreed to cover the U.S. railway’s US$700 million break fee to CP Rail. Under CP Rail’s latest offer in August, the Calgary-based railway said it would refund the break fee as well as pay for a break fee of the same amount due to CN Rail.