(The following column by David Olive appeared at Canada.com on July 23.)
TORONTO — Let CPR go: We expect a hue and cry over the possible takeover of Canadian Pacific Railway Ltd., rumoured takeover bait for an investor consortium headed by Brookfield Asset Management Inc. Probably best to ignore it.
CPR has lacked a sense of urgency about improving its operations, even as larger rival Canadian National Railway Co. has become the best-run road in North America, with an operating ratio – expenses as a proportion of sales – of only 61 per cent to CPR’s 75 per cent or so.
CN long ago shed its hotels and other non-rail assets, and under successive CEOs Paul Tellier and Hunter Harrison bent to the task of running the leanest railroad on the continent. CN also made three smart acquisitions – Illinois Central, Wisconsin Central and B.C. Rail – that spread its expenses across a wider network, and transformed CN into the only genuine North American road with Illinois Central’s access to the Gulf of Mexico.
CPR, by contrast, was late in spinning off its hotel, shipping, coal, oil and gas and other non-rail operations, and still suffers from a mildly sclerotic hangover from its decades as a huge but mediocre conglomerate.
Brookfield CEO Bruce Flatt has emerged as one of the country’s most successful masters of the turnaround, while also tending expertly to long-term assets like Lower Manhattan’s World Financial Centre that he inherited from the previous management regime when Brookfield was known as Brascan Corp.
It will be a surprise if rival bidders don’t emerge. Under new management, the prospects for CPR catching up to CN in operating performance are good, as are the fundamentals of the industry. Will Flatt get the prize? Quite possibly not.
Flatt will wisely back off if failed bidders for BCE Inc. (now Bell Canada) – including Canada Pension Plan Board, which is particularly desperate to bag something big to earn the dealmaking status of an Ontario Teachers Pension Plan or Caisse de depot et placement du Quebec – enter the contest with rival bids that price CPR as though it has already matched CN’s lofty margins.