Bill Ackman (Trades, Portfolio) is selling off 14 million shares of Canadian Pacific Railway Ltd. (CP, Financial)(TSX:CP, Financial) – a stock making up about a fifth of his equity portfolio – ending one of his big turnaround plays.
Unloading the shares will raise about $1.4 billion for Ackman’s hedge fund, Pershing Square Holdings, which suffered a 19% net loss year to date, nearly matching its worst-ever 20.5% loss last year. The Canadian Pacific transaction comes on a string of stock sells Ackman made in recent months, more than halving his position in Zoetis (ZTS, Financial) – one of his three profitable positions in 2015 – in May and July, reaping $1.1 billion, and reducing holdings in Mondelez (MDLZ, Financial) and Air Products (APD, Financial) in the first quarter.
Proceeds from the first-quarter sells contributed to what Ackman called on CNBC in March “large cash balances in every one of its funds,” averaging 14-15%. At the time, though investors speculated Ackman needed the cash to meet redemptions from clients put out with the losses, Ackman said that as of Feb. 15 only 2% of assets had been removed, or 17% of funds that could be withdrawn.
Dollar amount redemptions for the first half were the lowest in eight years at Pershing Square, Ackman said on his second-quarter conference call, and 37% below the eight-year average. Fortune reported the total dollar amount of funds pulled as $600 million, which his recent sells have raised more than enough to cover, meaning he may be eyeing another large investment.
Poor returns at Pershing stem principally from heavy losses in investments in Valeant (VRX, Financial) (down 78% year to date) and in his short of Herbalife (HLF, Financial) (up 26% year to date), where Ackman has struggled as an activist.
Ackman’s activist exploit with Canadian Pacific proved far more profitable. Started in the third quarter 2011 with approximately 4 million shares, Ackman bought the bulk – more than 20 million shares – in the next quarter. From his average price when he started the stake in the high $50s, Canadian Pacific traded for $147.23 per share on Aug. 3, the date of his sell.
“Canadian Pacific has completed an incredible transformation since our initial investment in 2011,” Ackman said in the sell announcement. “Hunter Harrison and Keith Creel have restored to greatness one of North America’s top railroads and have set the company on the path to continued success.”
Revenue at Canadian Pacific grew from 2011 to 2013 but has been in decline since, while net earnings and return on equity reached records in the past two years. ROE and net margins were both the second highest in the industry in the second quarter. Workforce headcount was also 1,891 lower, cut from 13,879 at mid-2011 to 11,988 at mid-2016. Ackman will close his tenure as a board director with the company having $17 million in cash on its balance sheet, the lowest since 2011, and debt totaling $6.5 billion, near a record.
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