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Activist investor TCI Fund says it’s acting in the best interest of all CN shareholders

By Bill Stephens | October 5, 2021

London-based TCI seeks to replace CN’s CEO and 4 board members

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Canadian National logoLONDON – The war of words continues between Canadian National and TCI Fund Management, its second-largest investor.

TCI, which seeks to oust CN CEO JJ Ruest and has nominated four directors to serve on CN’s board, today disputed claims that CN made on Monday. CN yesterday set March 22 as the date it will hold a special shareholder meeting that TCI called so that investors can consider its slate of board candidates and calls for management change.

TCI took aim at four points CN made, including that it’s a “dissident shareholder” seeking control of the company; that TCI has a conflict of interest because it’s Canadian Pacific’s largest investor; CN’s failed pursuit of a merger with Kansas City Southern was a positive development; and that TCI has been publicly attacking CN.

TCI, which owns just over 5% of CN’s shares, says it’s been a CN investor since 2018 and is acting in the best interest of all investors. “As a long-term CN shareholder, TCI is fully committed to the future health and performance of the Company and is acting to enhance value for all CN shareholders,” TCI said in a statement.

TCI’s four board nominees are independent, the fund says, and TCI is not seeking to gain control of the company.

TCI says it has $4.3 billion invested in CN and a $3.7 billion stake in CP because it believes in the success and growth of railroads in Canada. It’s not unusual for a fund to invest in more than one company in a sector, TCI says.

“For years, CN has been losing market share. TCI believes that, with a strong Board and world-class CEO, CN will regain its dominant market position and be the fastest growing and most profitable Class I railroad once again,” the fund said.

TCI said it was “disingenuous” for CN to claim that the KCS bid was positive for CN. TCI claims CN could have been on the hook for $2 billion in merger-related breakup fees and lucked out when U.S. regulators delayed a key ruling on placing KCS into a voting trust. CN netted $700 million in breakup fees from KCS.

TCI said it has been critical of CN’s board and chief executive, not the company. “TCI has said many times CN is a great company, and owns a unique asset – the best rail network in North America,” TCI says. “However, the Board is inadequate, and has been responsible for multiple corporate governance failures, while the CEO lacks the operational expertise to run a railroad.”

TCI maintains that management and board changes are required for CN to bounce back from what it views as the railway’s financial and operational underperformance since 2016.

“With a new Board and world-class CEO, TCI is confident CN can get back on track and regain market share in the extremely attractive Canadian railway industry,” TCI said.

TCI has nominated four directors: Gil Lamphere, a former board member at Illinois Central, CN, and CSX Transportation; former Credit Suisse transportation analyst Allison Landry; former UP Chief Financial Officer Rob Knight; and retired CN executive Paul Miller.

It also recommends replacing Ruest with Jim Vena, who was CN’s chief operating officer from 2013 to 2016 and served as Union Pacific’s operations boss from 2019 through Jan. 1, 2021.

CN’s board has backed Ruest, who last month unveiled a Full Speed Ahead plan to cut costs and capital spending, eliminate management jobs, and boost profitability.

TCI has yet to release details for how it believes Vena would improve CN’s operations and financial performance.

13 thoughts on “Activist investor TCI Fund says it’s acting in the best interest of all CN shareholders

  1. If TCI is so dissatisfied with CN’s performance perhaps they should simply sell their stake and move on.

  2. First, as a three year older of CN shares, TCI is NOT a long term shareholder. I have owned the stock for six years and don’t consider myself a long term shareholder. Second, if I graph CN share price, over a five year period, I see a steady and significant increase. Only in the past year has it flatlined, NOT a longterm trend. Last TCI has been a detriment to the long term health of CN, as shown by CN’s CEO recent abandonment of sound investment and growth plans and policies.

  3. I am disturbed that current management is trying to outcompete TCI in reducing capital investment in order to raise the share price. I am also disturbed at TCI’s plans for the company. As a 10 year long-term small investor, how do I vote my shares? I want the company to continue investing in capacity and customer service as it has been doing since the departure of EHH.

  4. Joe; I suspect JJ is playing “get along to go along” here. In other words, take the wind out of TCI’s argument and get them to shut up and go away. Once CN gets over this hump, I imagine they’ll shift back over to their grow the business strategy.

    1. Curt, I hope so. But I’d rather that they explain to the world that future profits depend on current investment. And I’d rather that investors looked at long term investment instead of quick profits.

  5. This is a broken record for TCI (aka “The Children’s Fund”). They are the same outfit that tried to hold up CSX for years, but were turned back by a court ruling.

  6. Like most disputes, the truth probably lies somewhere in between. I believe TCI was right to object CNI’s attempted purchase of KSU. This is forcing them to concentrate in growing their business and resume investing back into their railroad. TCI should also know CNI was slammed with extreme weather issues, first nations protest closures, and the onset of Covid last year.

    However, it sounds like TCI wants throw the baby out with the bathwater by wanting to bring in new board members and management, who would defer maintenance and delay investments into expanding their railroad in exchange for greater short term profits. Now management want to do the same things, but a slower pace. Nevertheless, I will vote my shares against TCI’s takeover.

    1. John; quite the contrary! If you’ve read CN’s plans to deflect TCI, they involve reducing CAPEX, increasing share buybacks and shedding assets that up until two months ago were considered strategic to CN’s growth strategy. And I quibble with folks who claim CN’s attempt to get KCS was misguided. Having retired from chemical transportation, I am aware that CN stands to lose a significant amount of chemical business to CPKC unless they cut rates to retain it. That will definitely have a negative impact on CN’s earnings.

      1. I wonder if a better strategy would have been for CN to demand KCS be split to maintain competitive balance, or at least to demand trackage rights.

        In retrospect, could their strategy have been just to bid up the price for CP and to collect the breakup fees on a deal they knew could not be completed?

        1. I see this was a ploy to make CP assume a greater financial burden. Due to the minimal overlap of the CP and KCS systems, any trackage rights to address competitive issue would have been a very difficult sell.

          TCI is not happy because the result of the competing did not put more money in their pocket. The competing bid which was dropped will only move some money around and has incurred costs in doing so. TCI sees those costs as being money out of their pocket.

  7. Keep in mind that this shareholder holds more CP shares(or more percentage) than CN. No conflict of interest there. I love that I work for an industry that allows( or potential) people to call the shots, that otherwise have no clue on operation of said industry.

  8. Customer, customer, customer. All the Class 1’s need to place much greater emphasis on the “last mile”. Customers need absolute confidence in on-time, frequent pickup and delivery. Best way to increase customer satisfaction and growth. Too much focus by all of them on Wall Street statistics. Will TCI do that? Maybe. And maybe TCI’s attention will push CN into that mindset first. We can only hope.

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