Activist hedge fund invests in CP

Pershing Square Capital Management, an activist hedge fund, reportedly has compiled a stake in Canadian Pacific Railway exceeding 12%.

In a regulatory filing, New York-based Pershing Square said CP Rail shares are undervalued and an attractive investment, and that it expected “to engage in discussions” with the company about a wide swath of its business.

Shares of CP rose 6.8% Friday after the filing was disclosed, and were up an additional 2.3% early Monday morning in trading on the New York Stock Exchange.

The move appears superficially similar to an effort during 2007 and 2008 by London-based The Children’s Investment Fund to acquire a significant portion of stock in CSX Corp., resulting in the placement of Fund representatives on the CSX Board of Directors. 

CP had no official comment, though it did issue this response to questions from its employees: “While we have an active dialogue with many of our investors, our practice is not to comment on those discussions.  As you may be aware, in a regulatory filing Friday with the U.S. Securities and Exchange Commission, Pershing Square Capital Management advised it had acquired 20.6 million shares of Canadian Pacific. As with others, CP is open to the views of its shareholders. We will speak with Pershing Square to hear their input into our plan, already targeted at realizing greater efficiency and improved service reliability. As we’ve been discussing for the past few quarters, especially heading into winter, it is important that each of you to continue focusing on strong performance on the Integrated Operating Plan, meeting our customer needs, and ensuring the safe operation of the railway.” 

One rail industry observer offered this observation: “I saw the new movie ‘Margin Call’ over the weekend — it’s a superb film and I recommend it highly. One of the points made by Jeremy Irons, who plays the head of the failing firm, is that they just buy and sell numbers on Wall Street and there is no emotion in it. Following yesterday morning’s collapse of (former U.S. Senator, New Jersey Goverrnor, and Goldman Sachs executive) John Corzine’s MF Global, I am reminded that these guys frequently don’t even know nor care what business the companies they buy are in.  Pershing Square head William Ackman (pictured) has been known to start these things and then bail as soon as the stock price gives him close to the profit he sought. He’ll never be caught trying to run CP; to him it’s just paper and a line on a map.”