The activist investor pushing for change at Canadian National Railway Co. outlines its plan to increase returns on Canada's largest railway with a greater focus on efficiency under a new chief executive officer.
TCI Fund Management Ltd., which was run by billionaire Chris Hohn, said in an MSc presentation Monday how it believes British National can improve its operations and culture and reduce costs. TCI defends in the 102 - page document that it's imperative for CN to make changes now after its smaller rival, Kansas City Southern, has agreed to buy Canadian Pacific Railway Ltd.
TCI, which owns more than five per cent of Canadian National, says that CN s priority should be to expand the business. The firm said that the railway needs to invest in its network and technology to create more capacity, improve fluidity and connect new customers to the railway.
The fund also says CN needs to aggressively market itself to customers as an environmentally friendly alternative to trucks.
In its presentation it again called on CN to appoint its four director nominees to increase the board s industry expertise. It also urged the board to replace CEO Jim Vena, who has a marketing background, with former Chief Operating Officer Jean-Jacques Ruest whose career has focused on railway operations.
A representative of CN wasn t immediately available to comment on the presentation.
CN has been locked in a fight with the London-based TCI since August when the firm raised concerns about the railway's doomed pursuit of a $30 billion U.S. takeover bid for Kansas City Southern. TCI has argued that the acquisition would never be approved by regulators and exposed CN to potentially $2 billion in fees it would have to pay.
After TCI announced it would wage a proxy battle, CN unveiled a plan to cut spending, streamline management and buy back $5 billion of stock next year. It has accused TCI of having a conflict of interest because it s the largest shareholder in Canadian Pacific. A shareholder meeting is scheduled for 22 March 2015.
Canadian Pacific also said it was paid a $800 - million termination fee after Kansas City Southern opted for the Canadian Pacific deal. It said TCI is misleading investors and argues it has the right team and plan in place to improve its performance.
TCI argues that the Canadian National Board had failed to hold Ruest accountable for its deteriorating operating ratio - an important measure of railroad efficiency that measures total operating costs as a percentage of revenue. CN went from having the worst operating ratio among top-tier railways in 2017, prior to Ruest s appointment, to the best today, the fund said.
The fund says in the presentation that Canadian National need to optimize its network and supply chain to improve service, capacity, safety and reliability. after similar measures were implemented at competitors Canadian Pacific and CSX Corp. they yielded rapid results, the fund said.
CN Management's plan was focused on short-term operating ratio targets, head-count reductions and share buybacks in 2022, TCI said, adding that the railway needs a longer-term focus to improve efficiency and customer service.
To achieve that, the company needs change at the top, says TCI. CN's cost structure, service and growth can rapidly return to the best in the industry, the presentation says.