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Sir Christopher Hohn’s activist hedge fund TCI calls for special shareholder meeting in bid to overhaul Canadian National

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TCI Fund Management, Sir Christopher Hohn’s high-profile activist hedge fund firm, is calling on Canadian National Railway to end its “reckless, irresponsible, and value destructive pursuit” of Kansas City Southern, and wants to requisition a special meeting of CN shareholders aimed at overhauling the board and replacing its CEO.

TCI, which has been a shareholder in CN since 2018, last week increased its holdings to more than 5 per cent of the shares outstanding, valued at USD4 billion.

TCI said on Tuesday it has retained shareholder advisory firm Kingsdale Advisors to offer strategic advice, assist in engaging with shareholders, and, “if CN continues to act in a manner that ignores the interest of shareholders and a proxy fight is required, Kingsdale Advisors will lead TCI’s campaign for positive change.”

Montreal-based Canadian National Railway has made a USD30 billion swoop for Kansas City Southern, the US, Mexico, and Panama-focused railroad operator.

Sir Christopher Hohn’s London-based activist hedge fund giant, which takes a value-oriented, fundamental, private equity-style approach to investing, wants CN to halt its pursuit of KCS and change direction.

TCI founder and portfolio manager Hohn said he believes most CN shareholders share TCI’s vision, will support its proposed actions and leadership changes, and called on CN to “listen to its shareholders and engage with TCI constructively.”

“We believe CN’s best days are ahead of it, provided the company immediately withdraws from its reckless, irresponsible, and value destructive pursuit of KCS,” Hohn said in Tuesday’s announcement.

TCI criticised CN’s ‘copy-cat’ bid for KCS, saying it reflected a “defensive motivation and lack of strategic thinking”.

It said CN has misjudged the view of the railroad industry regulator the Surface Transportation Board, which earlier this month rejected CN’s proposed deal structure.

TCI said persisting in the face of opposition from the STB and other government agencies would be “negligent, hugely damaging to the reputation of CN”, and “potentially financially disastrous because it would expose the company to the risk of forced divestment and damaging remedies.”

Combined with CN’s continued operational underperformance, TCI said the saga makes the case for change at the  “compelling and clear.”

“It is shocking to us that there is currently no-one on the Board who has had any meaningful outside involvement, background or training in the railroad industry. The bid for KCS exposed a basic misunderstanding of the industry and the regulatory environment,” Hohn said.

“The CN Board must therefore take full responsibility for its egregious failure of oversight in sanctioning the bid.”

Kingsdale Advisors has previous experience in the railroad industry, having earlier represented high-profile hedge fund veteran Bill Ackman, founder and CEO of Pershing Square Capital Management, in his campaign to change the board at Canadian Pacific Railway.

Hohn now wants to “urgently” requisition a meeting of CN shareholders to nominate “at least five new directors with a with a mandate to lead the Board in the process of selecting a new world class CEO with extensive experience of railroad operations to turn CN around.”

TCI wants to remove CEO Jean-Jacques Ruest and has identified Jim Vena, who has previously worked at CN and Union Pacific, as his replacement.

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