Activist investor Bill Ackman: regulators likely open to railroad merger

TORONTO – Activist shareholder Bill Ackman says he believes regulators would be open to railway mergers if it made for stronger competition in the transportation industry.

“We’re not building any new railroads. The only way we’re going to meaningfully improve the fluidity and efficiency of rails is operationally,” he said Thursday in Toronto.

The billionaire investor, who led a successful proxy fight to replace top leadership at Canadian Pacific Railway Ltd. (TSX:CP), said the management of that railway operator could be paired with one of its rivals to create a better link between overlapping transit routes and with the trucking industry.

A recent Wall Street Journal report, citing anonymous sources, said Calgary-based CP made an overture to U.S. rival CSX Corp. last week, but had been rebuffed. Analysts have suggested that such a deal could yield benefits, but it would face regulatory hurdles.

While Ackman did not address the CSX report directly, he said CP chief executive Hunter Harrison believes further consolidation is required within the rail industry.

“There are rail combinations that could not happen for antitrust reasons, but there are some rail combinations that can be pro-competitive, as opposed to anti-competitive, that could help make a railroad more efficient,” he said.

Ackman made the comments after participating in an Ontario Securities Commission panel on corporate governance where spoke in support of activist investment approaches like his, which he said give shareholders options they would never have otherwise.

At one time, the only alternative for unhappy shareholders was to dump their stock if they were dissatisfied with leadership in the board room, he said. Now, shareholders have an alternative they can accept or reject in the pursuit of longer-term value.

“The notion that shareholder activists are running around doing horrible things to companies and destroying the country is silly,” he said during the discussion.

“There is good shareholder activism and bad.”

Ackman said he believes Canada is a better jurisdiction than the U.S. for activist investors because poison pills defences, also known as shareholder rights plans, are weaker which makes it more difficult for boards to fight hostile takeover attempts. Ackman also noted Canadian companies don’t have staggered boards, where directors are elected to serve varying terms instead of annual ones and can make it difficult to replace an entire board.

“A very healthy thing about shareholder activism is you have someone who buys a large stake in a business and who has done an enormous amount of research,” he said, pointing out that activists also have the capital to take the risk.

Ackman’s investment company, Pershing Square Capital Management, is in the midst of a hostile takeover bid for Botox-maker Allergan (NYSE:AGN) in partnership with Canadian drug company Valeant Pharmaceuticals International Inc. (TSX:VRX).

He signalled that Pershing Square lawyers have dug up new documents that will support claims that Allergan made false statements about Valeant in an effort to derail an attempted $50-billion hostile takeover.

“Publicly they put out materially false and misleading statements about its accounting, about its cash flows, and then privately they’ve met with Valeant shareholders and were successful in convincing some Valeant shareholders to dump the stock,” he said after the panel discussion.

When shareholders bailed, Valeant’s stock tumbled and caused the Quebec-based drug company’s cash-and-share offer lose some of its value.

None of the allegations have been proven in court, and the documents haven’t been filed with securities regulators.

Ackman’s lawyers plan to make a request with the court to amend its legal submissions sometime next week, he said.

Allergan’s lawsuit against Pershing, which accuses Ackman’s company of insider trading, will be heard Oct. 28 in California.

A special meeting on Allergan’s board is Dec. 18 to hear Ackman’s bid to replace the majority of its directors.