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Activist hedge fund TCI spells out strategic overhaul of Canadian National Railway

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Sir Christopher Hohn’s TCI Fund Management has set out a strategic plan to overhaul Canadian National Railway which it says would put the Montreal-headquartered freight railway company “back on track.”

The London-based activist hedge fund this week outlined sweeping proposals for a “high-quality, experienced board, a world-class railroader as CEO and a long-term plan for sustainable growth.”

The plan also includes several board changes and a new CEO, four immediate key priorities, and a six-point plan for sustainable long-term growth.

In Monday’s announcement, TCI said CN’s current board had been responsible for “multiple corporate governance failures”, which has led to a “brain-drain of high-quality operators” from the company. 

It accused CN of “establishing a board that has no meaningful railroad experience and expertise, and selective, inconsistent and potentially misleading disclosure of material information that shows a deliberate lack of transparency with respect to corporate governance matters.” 

It also criticised CN’s failed bid for Kansas City Southern.

Ahead of a special shareholder meeting scheduled for March 22, TCI has nominated four independent board members – Gilbert Lamphere, Allison Landry, Rob Knight and Paul Miller – as well as CEO candidate Jim Vena.

TCI said Vena is a “well-respected railroader with a proven track record as an exceptional operator and leader who is uniquely qualified to run CN.”

Lamphere, who has some 40 years’ experience of the railroad industry, has been a board member of several public and private railroad companies. Landry – an independent director on the board of transportation company XPO Logistics – previously spent 16 years as an equity research analyst at Credit Suisse, specialising in the railroad, trucking, airfreight and logistics industries.

Knight spent 40 years at Union Pacific, including 15 years as CFO. Miller, a transportation, logistics, safety management and regulatory affairs expert, was an executive at CN between 1978 and 2011, having held roles in operations, marketing and planning, and latterly as vice president, safety, sustainability and network transportation before retiring in 2011.

TCI’s four key priorities are to grow the business; invest in the network and technology to create capacity, improve fluidity and connect new customers to the railroad; develop and motivate CN’s people to deliver the growth plan safely; and actively campaign and publicly advertise to promote the environmental and fuel efficiency benefits of railroads versus trucks, helping lower CO2 emissions, reduce road congestion and advance the urgent fight against climate change.

TCI has been a CN shareholder since 2018, and recently increased its holdings to more than 5 per cent of shares outstanding, valued at USD4 billion. The activist manager has been agitating for change at the company amid “serious concerns” over its corporate governance practices.

The activist manager said CN has “the best network in North America” and should be the “most efficient and fastest growing railroad” in the region. But “poor oversight” by the board has led to the company underperforming other Class 1 railroads on key operational and financial performance metrics, it added.

TCI’s six-point plan for sustainable, long-term growth includes a low cost, high-service network; plans to make CN a more attractive shipping alternative for customers; “a reliable and precise schedule [to] free up network capacity for CN to offer more frequent shipment options and departure times”, and a more profitable business model.

“An efficient, high-service, reliable, low cost, fluid and flexible network will open up significant new growth opportunities for CN,” TCI added.

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