Page Content: [h=2]Board Believes a Vote for Pershing Square and Hunter Harrison is a Vote for Risk and Disruption[/h][h=2]Sends Letter to Shareholders[/h]Canadian Pacific (TSX: CP) (NYSE: CP) today sent the following letter to shareholders: May 02, 2012 Dear Fellow Shareholder: CP needs to grow to achieve its potential.¤ Railroads prosper through traffic density and our Multi-Year Plan is specifically designed to grow CP’s volumes and significantly enhance shareholder value. Between now and CP’s annual meeting on May 17, 2012, CP recommends that you vote FOR continued growth, success and momentum on the WHITE universal proxy. CP has the right team in place to enhance shareholder value — our experienced management team is successfully executing on the Multi-Year Plan, which is delivering record operating metrics and improved financial performance, as evidenced by our strong first quarter earnings.¤ CP’s Board unanimously believes that Pershing Square’s demand that CP replace the Company’s CEO with Mr. Harrison would delay and damage CP’s value-generating plan, and put our progress and momentum at significant risk.¤ While Pershing Square appears to agree with CP’s Plan in principle, its stated approach is diametrically opposed to the Plan’s successful implementation.¤ Pershing Square has stated that the bulk of its projections are based on cost-cutting when in fact CP has maintained operating expense unit costs comparable to Canadian National Railway (“CN”) since 2006, excluding legacy pension expense.¤ We believe Pershing Square’s approach does not make sense for your Company and represents a real risk to your investment in CP. Shareholders should ask themselves how deep Pershing Square and Mr. Harrison would cut in order to achieve their unprecedented Operating Ratio (“OR”) targets.¤ Public statements by Pershing Square and Mr. Harrison imply that they plan to cut expenses by nearly $700 million by 2015, an amount equivalent to the cost of 45 per cent of CP’s work force or more than the expense associated with the leases, depreciation and maintenance for the company’s entire locomotive and rail car fleet.¤ In short, Pershing Square is proposing to make drastic and unrealistic cuts to one of the smallest of the Class I railroads to achieve OR targets at a rate that no management team has ever delivered. [h=3]CP’S MULTI-YEAR PLAN HAS SIGNIFICANT MOMENTUM AND IS DELIVERING RECORD OPERATING METRICS AND IMPROVED¤FINANCIAL PERFORMANCE[/h]Every successful turnaround of a railroad has been based on a clearly articulated plan which balances revenue growth and efficiency.¤ Some of the key programs in CP’s Multi-Year Plan, which is designed to get the most out of CP’s unique assets include: ¤ •¤Operating longer, heavier trains.¤ By leveraging advances in train marshaling and train control technology and establishing a network of long sidings so that trains can meet and pass efficiently, CP can move more volume with fewer new train starts.¤ This strategy, developed under Fred Green’s leadership, has been built with productivity in mind.¤¤ ¤Improving our yard processing capabilities.¤ Yard processing can have a major impact on the fluidity of a railroad, and enhancing this key aspect of our network will facilitate a lower cost operation, improve customer service and enable growth – all without the capital-intensive process of adding significant yard infrastructure.¤ The results of this program are evident in our reported results. Extending CP’s market reach and length-of-haul.¤ CP is successfully expanding our revenue base and profitably growing the business by leveraging the market reach and length-of-haul provided by the DM&E.¤ The addition of the DM&E extended CP’s reach deep enough into the U.S. to give the Company direct access to Kansas City, the second largest rail terminal in the U.S.¤ The DM&E also allowed CP to expand the reach of our successful agri-business, creating one of North America's best grain origination franchises, and gave the Company destination optionality for Bakken crude – a fast-growing energy market with huge potential.¤ The management team’s successful execution of the Multi-Year Plan - as evidenced by the record operating metrics CP has consistently delivered over the past several quarters - has enabled CP to narrow the target OR range for the plan from the low 70’s to 70 - 72 per cent for 2014.¤ Recently, further success and a clear line of sight to new growth opportunities allowed CP to extend the Multi-Year Plan out by two additional years with a target OR range of 68.5 - 70.5 per cent for 2016.¤ Importantly, these initiatives are fundamental components of our strategy to drive volume growth over the horizon of the Multi-Year Plan.¤ [h=3]VOLUME GROWTH AND STRATEGIC INVESTMENT ARE CRITICAL TO CP’S FUTURE SUCCESS[/h]Volume growth represents 900 basis points of CP’s targeted OR improvement over the next five years.¤ CP’s continued service improvements and $1 billion new business opportunity pipeline are key elements in driving profitable growth over the Multi-Year Plan horizon. CP operates in a highly competitive landscape – more than 80 per cent of CP’s franchise has direct rail competition compared to a much lower portion of CN’s franchise - and therefore customer relationships are critical.¤ Customers choose CP because they WANT to do business with us – not because they must.¤ Our customers’ confidence in CP is directly responsible for CP’s success in securing contracts with favourable pricing, margins and market share commitments.¤ In turn, the company’s major contract wins, including favourable long-term agreements such as those with Canpotex and Teck, have provided the stability to confidently make value-generating investments.¤ Since 2005, CP has strategically invested over $350 million to enhance capacity to enable low-cost growth.¤ During the recession in 2009, we prudently reduced the amount of capital that would normally be available for investment.¤ As a result of management’s aggressive actions during the recessionary period, CP was able to resume its capital investments in locomotives, longer sidings and track upgrades.¤ When paired with the key programs underlying our Multi-Year Plan, our improved infrastructure makes for a fundamentally enhanced railroad and has been a major factor in enabling record-breaking operating performance. [h=3]THE PERSHING SQUARE AND HARRISON PROPOSAL TO CUT THEIR WAY TO SHARE PRICE GROWTH IS FLAWED[/h]Pershing Square says it can achieve its OR goal of 65 per cent by 2015 predominantly through cost cutting.¤ In an interview on CNBC on April 30, 2012, William Ackman, CEO of Pershing Square, stated, “This is a cost story more than it’s a revenue story.”¤ In the same interview, Mr. Harrison revealed that his plan included only 2.5 per cent annual revenue growth, noting “ours is on the cost side, theirs is on the revenue side.”¤ However, CP’s cost per revenue ton mile – the key operating expense unit cost most frequently used in the railroad industry – has been comparable to CN’s since 2006, excluding legacy pension cost.¤ As the programs underpinning our plan take hold, we expect to drive further improvements. CP cannot cut its way to growth.¤ It must invest to grow.¤ This is what the proxy contest is really about.¤ This is why a vote for Pershing Square and Hunter Harrison is a vote for risk and disruption. [h=3]PERSHING SQUARE’S DEMANDS RISK DISRUPTING CP’S SIGNIFICANT MOMENTUM[/h]The Board of CP believes that a Plan that appropriately balances revenue growth, capital investment for future profitability, and cost control is necessary to get the most out of CP’s unique assets.¤ CP’s Multi-Year Plan does exactly that.¤ The entire Board of CP, including our Safety, Operations and Environment Committee, will continue to closely oversee management’s execution of the Multi-Year Plan and the significant shareholder value we believe it will yield.¤ Make no mistake; the Board is holding Fred Green and the CP management team fully accountable for the success of this Plan.¤ As Michael Phelps, Chairman of the Board’s Management Resources and Compensation Committee, said at CP’s 2012 Investor Day on March 27th, 2012, “The expectation is of a significant, measurable, evident, continuous improvement, or else... We understand the expectations from the marketplace and we expect to see improvement.” The CP Board believes that Pershing Square’s demand that CP replace the Company’s CEO with Mr. Harrison would result in major disruption to the momentum CP has built.¤ Furthermore, the Board believes that management change at this time represents unwarranted risk to the successful execution of the Multi-Year Plan and to creating value for shareholders.¤ Shareholders should ask themselves: why change a team with a winning plan? Why agree to a plan and then make it impossible to implement? You may vote for CP’s director nominees using the instructions provided on the WHITE universal proxy on the Internet, or by signing, dating, and returning the WHITE universal proxy in the postage More...
