CALGARY — One year after five independent companies emerged from the breakup of business icon Canadian Pacific Ltd., former president David O’Brien says the spinoff was an “unqualified success,” the Canadian Press reported.
The sum of Canadian Pacific’s parts — which included CP Rail, CP Ships, Fording Coal, Fairmont Hotels and PanCanadian Energy — is worth about 30 per cent more than a year ago when they began trading on the Toronto Stock Exchange, on Oct. 3, 2001.
And this was during a time of great economic uncertainty and a market “that has been just awful,” says O’Brien. In comparison, the TSX 60 index of Canada’s 60 largest public companies has fallen 14 per cent. “Almost without exception, the companies have come out and are doing well in their respective industries.”
As one of the chief architects behind CP’s disintegration, O’Brien believed it would unlock value that wasn’t properly appreciated in the huge conglomerate.
But he also warned last year that only about half of the five new companies would likely avoid being taken over by competitors. Surprisingly, the only one no longer in existence is PanCanadian Energy – the jewel in the CP crown that O’Brien ended up running after the breakup. Discussions with main oilpatch rival Alberta Energy Co. led to a $27-billion merger and the spring creation of EnCana Corp., North America’s largest independent oil and gas producer.
O’Brien said the merger was a case of “taking the bull by the horns” in the face of a succession of oilpatch takeovers by huge U.S. energy firms. “We looked at the landscape and said to survive and prosper we’d be better off combined with another strong company where we could be a Canadian-based company that could go international and have the size and scale to be successful.”
One year and a serious market correction later, O’Brien no longer thinks the “baby CP” companies are as vulnerable to big-dollar takeovers.
“I would say at this stage, if anything these companies would be more likely, over the next year, to be acquirers.” The companies have been busy with their individual strategies. Calgary-based EnCana made two deals to greatly expand its position in the natural gas-rich U.S. Rocky Mountains, with a $461-million purchase in April and a $539-million deal in August. O’Brien is EnCana’s chairman.
Fairmont hotels, formerly known as CP Hotels & Resorts, has been pursuing its goal of becoming an operator of premier resorts, along with a host of elite city-centre locations. Its latest acquisition was a 20 per cent stake in a California wine-country resort in late August.
And while the entire industry has been badly shaken since the terrorist attacks in the Unite States, Toronto-based Fairmont’s last quarterly results showed a nearly 11 per cent increase in income from continuing operations – thanks to renovations at two Bermuda hotels.
CP Ships had the most work to do after breaking away from the parent company. Few investors in North America knew much about the firm or its industry.
But results have been surprisingly positive for the London-based shipping company. Chief executive Ray Miles recently took much comfort in a $16-million US quarterly profit, contrasting with the red ink of its competitors. CP Ships has also been on an acquisition spree, buying four container ships for $180 million US in late July and Italian shipping company Italia di Navigazione for $40 million US in May.
CP Rail embarked on cost-cutting that improved profitability and attracted investors’ attention despite wild uncertainly after the Sept. 11 attacks.
“For a railway, a bad grain crop would have been bad enough in the olden times,” CP Rail president Rob Ritchie said recently. “But now we had all of those uncertainties of what it meant because of the terrorist attacks – and a poor grain crop.”
As Canada’s No.2 railway behind Canadian National, Calgary-based CP Rail has put a lot of emphasis on strategic alliances with other U.S. railways to increase its reach and provide the seamless service required to compete with the trucking industry.
The railway’s challenges over the next year include a sickly U.S. economy and the impact of a severe drought in Western Canada. Fording, the world’s second-largest producer of metallurgical coal — the fuel used to form coke that feeds the blast furnaces in steel production — has arguably had the toughest year of the five former CP divisions.
Chief executive Jim Gardiner said the year was one of “mixed results.” The company has received large price increases for its coal in the past two years, but has been stung by lower sales volumes.
On Tuesday, Fording cut its sale forecast for this year by one million tonnes, or seven per cent, due to an unsuccessful bid for a large contract in Turkey. But like all the former CP divisions, Fording says its healthy finances at inception have given it the ability to weather the bad times.
“Our balance sheet and our very strong financial position I think protects us from the very large falls of some other corporations and the market in general,” Gardiner said this week. “And that’s still the case today as when we came out.
“We’re in very strong financial shape – we’ve paid down some debt, we’ve bought back some shares, we’ve paid our dividends, we’ve looked after our capital requirements and we have a very strong, clean balance sheet.”
The five companies spawned from last year’s breakup of the Canadian Pacific Ltd. conglomerate: EnCana Corp.: Based in Calgary, EnCana was formed last spring by the merger of former CP company PanCanadian Energy and rival Alberta Energy Co. Worth about $30 billion, EnCana is North America’s largest independent oil and gas company with key growth holdings in the North Sea, Gulf Coast, offshore Nova Scotia and in Ecuador.
Canadian Pacific Railway: With headquarters in Calgary, CP Rail is North America’s sixth largest railway with a 22,500-kilometre network that serves major centres of Canada, from Montreal to Vancouver, the U.S. Northeast and Midwest regions and feeds directly into the Chicago hub from both coasts.
Fairmont Hotels: Based in Toronto, Fairmont is one of North America’s leading owner/operators of luxury hotels and resorts with a portfolio of 78 well-known properties in Canada, the United States, Mexico, Bermuda, Barbados and the United Arab Emirates. The company also manages 39 other city-centre and resort hotels across North America.
Fording Coal: Headquartered in Calgary, Fording is the world’s second-largest exporter of metallurgical coal, behind Australia’s BHP. Its three mines in southeastern British Columbia produce high-quality coal for the international steel industry while its two Alberta mining operations supply thermal coal to electric utilities.
CP Ships: London-based CP Ships calls itself one of the world’s leading container shipping companies, providing international container transportation services in the transatlantic, Australasian, Latin American and Asian markets with a fleet of 80 ships.