American billionaire and Pershing Square Capital Management CEO, Bill Ackman, announced the sale of his Canadian Pacific Railway Limited (USA) (NYSE:CP) shares yesterday. These 9,840,890 common shares were sold through a public offering.
With the sale of these shares, the activist investor will end his role in the railway company. Meanwhile, the company also cleared it publicly that it had nothing to do with the sale offering, hence it would not receive any kind of proceedings from it. Furthermore, the company also advised the interested parties to go through the published prospectus before making any investment decision.
Pershing Square’s Stake
Pershing Square started its investment in Canadian Pacific during late September 2011. Ever since, the company’s stock has risen gradually to touch 161.65% growth. As a result, the hedge fund gained over $2.6 billion through this investment.
However, the fund reduced its stake earlier this year amid poor basic material market conditions that hit railway companies badly in the second half of 2015. At the time, Mr. Ackman calmed down the railway company’s investors stating that he still had complete confidence in the company and its future growth. Furthermore, he also played a key role in the effort to acquire Norfolk Southern Corp (NYSE:NSC) for $24 billion. However, the acquisition effort fell short of rival price expectations and finally collapsed.
Canadian Pacific’s Performance Review
On July 20, 2016, Canadian Pacific announced mixed second quarter financial results for the year 2016 (2QFY16). Its $1.125 billion revenue missed consensus estimates of $1.137 billion. However, its $242.107 million net income (EPS $1.587), beat the Street’s projection of $235.804 million (EPS $1.552).
In support of this financial report, Canadian Pacific’s CEO, E. Hunter Harrison, stated: “Revenue challenges in the second quarter, as noted in our quarterly outlook release last month, included lower-than-anticipated bulk volumes, devastating wildfires in northern Alberta and a strengthening Canadian dollar.” He continued: “Despite these challenges, our team of dedicated railroaders continues to perform and their hard work and focus on service, safety and controlling costs, positions CP well for the rest of the year.”
Lower revenue also impacted cash flow, with operational cash flow dipping from $874.65 million (CAD 1,140 million) to $560.08 million (CAD 730 million) during 1HFY16. This drastically reduced total free cash from $372.11 million (CAD 485 million) to $50.64 million (CAD 66 million).
Retirement of CEO
Following the quarterly result, a big change also occurred in top management, when news surfaced that Mr. Harrison was retiring from his post. In his place, current President and COO, Keith Creel will take charge as CEO. Furthermore, it was also disclosed that after approval from the upcoming CEO, a three-year post-retirement consulting agreement had been signed with Mr. Harrison.
Research Firms’ Stance
As per Bloomberg's statistics, 27 research firms covered Canadian Pacific Railways. Out of these, 18 firms suggested a Buy and eight advised a Hold, while Eva Dimensions was the only sell-side firm that recommended a Sell for the company stock. The average 12-month target price from these research firms turns out to be $161.44.
The news of Mr. Ackman's exit jolted the company’s investors. Today’s intra-day transaction is showing selling pressure, with the stock declining to as low as $141.65. Currently, it is trading at $142.57, down 3.20% as of 10:50 AM EDT.