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Activist investor TCI pushes for board changes at CN Rail after KSC favours CP Rail

Written by on September 13, 2021

TORONTO — 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 a U.S. railway 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-Jacque Ruest. 

The move comes a day after Kansas City Southern 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.”

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 did not immediately respond to a request for comment. 

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. 

This report by The Canadian Press was first published Sept. 13, 2021.

Companies in this story: (TSX:CNR, TSX:CP)

Ian Bickis, The Canadian Press