Shareholder Activism

Canadian Pacific Railroad (CP)was one of Canada’s main railway businesses that the
government once owned. CP had weathered string competition from Canadian National Railway
Co (CN) and experienced a challenging start at the beginning of 2011 due to severe winter,
floods and rail line maintenance that took longer than expected (McMillan & Gandz, 2014).
Perishing Square Capital management began an activism campaign and a quest to make
significant changes in its structure.
Internal and external issues
Perishing had gained access to valuable information about CP, leading to their
determination that the CP was undervalued (McMillan & Gandz, 2014). This could indicate that
CP made too many disclosures that left it vulnerable to shareholder activism.
CP had a balance sheet and financial challenges. These challenges cost the organization
revenues, productivity and asset velocity. Realizing the opportunity, hedge fund organization
Perishing Square Capital Management started an aggressive purchase of the organization’s stock.
Perishing was therefore required to inform the Securities Exchange Commission of its activities
to purchase shares once they exceeded 5% (McMillan & Gandz, 2014). Perishing provided
justification for its aggressive purchase to be the belief that the organization was undervalued
and that it had great potential in the industry that which it was operating.
Perishing planned to replace CP’s CEO with the retired head of Canadian National
Railway Co. Perishing passed SEC’s 5% threshold and, by the third quarter, owned over 14% of
the shares. The actions had caused an increase in share prices due to optimism in the market

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(McMillan & Gandz, 2014). Perishing then initiated plans to replace board members whom it felt
did not have the required experience in the rail industry.
Alternatives to the problem
CP could have avoided the onslaught by perishing by initiating a share buyback
agreement. Such an agreement would ensure that the organization retains significant control that
it needs to exercise powers. Another alternative would have been to have share differential
voting rights. DVRs allow organizations to raise funds in capital markets and retain control of
their affairs (Dong 2020).
Recommendations
CP needed to regain control by initiating share repurchase agreements to avoid continued
shareholder activism. CP also needed to trade in DVR shares to maintain control of its affairs.

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References

Dong, W. (2020). Research on Improving Power Quality of DVR Compensation Based on
Hybrid Control Strategy. International Journal of Simulation Systems Science &
Technology. https://doi.org/10.5013/ijssst.a.16.1a.11
McMillan, C. & Gandz, J. (2014). Shareholder Activism at Canadian Pacific Railroad
Company. Richard Ivey School of Business Foundation.