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Ackman Takes a Huge Stake in Canadian Rail Company

October 28, 2011 | About:
Bill Ackman of Pershing Square has taken a 12.2% stake in CP Rail (CP.T).

Ackman is obviously looking to take an activist approach with this investment as he said that he would approach CP’s management and board for talks about “the business, management, operations, assets, capitalization, financial condition, governance, strategy and future plans of the issuer.”

It appears that Ackman bought shares of CP when shares traded around $45. Shares of the railway company were battered as many analysts worried that Canada would experience slower commodity volume and the company experienced disruptions due to bad weather in western Canada. The shares have since rebounded and currently trade at $64.

CP Rail is not Ackman's first foray into Canada as he previously invested in Canadian Tire and Sears Canada.

There is a lot of room for improvement at CP Rail as the company deals with high unit costs, slow train speeds and other operational difficulties. However, one can look at Ackman's bet as simply a commodity investment in drag as CP Rail generates 43% of its revenues came from bulk commodities such as grains, fertilizers, and coal. For example, the company has a ten-year agreement with Teck Resources to ship coal across North America.

Rating: 3.1/5 (10 votes)


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GuruFocus has detected 3 Warning Signs with Canadian Pacific Railway Ltd $CP.
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