Posts Tagged ‘Jean-Jacques Ruest’

Fund Wants CN to Delay Naming New CEO

December 28, 2021

A hedge fund seeking to take control of top management of Canadian National wants the Montreal-based Class 1 to delay naming a replacement for its retiring CEO until after a shareholder meeting next March.

TCI Fund Management has put forth a slate of four nominees for seats on the CN board of directors who will be voted upon during the March 22 meeting.

However, TCI’s preferred choice to become CEO, Jim Vena, recently withdrew his name from consideration.

Current CEO J.J. Ruest plans to retire in January after a new CEO is named.

TCI has been critical of CN management this year for its handling of an unsuccessful effort to acquire Kansas City Southern.

That bid collapsed in the face of opposition from the U.S. Transportation Board.

CN rival Canadian Pacific was subsequently able to reach agreement to acquire KCS.

The two expect to merge next year pending approval by the STB.

CN Expects to Name New CEO in January

December 21, 2021

Canadian National indicated this week it expects to name a new CEO next month.

The Montreal-based Class 1 railroad is working with consulting firm Korn Ferry to review potential suitors for the job.

The new CEO will replace J.J. Ruest who this past October announced his retirement plans. Ruest plans to step down after a new CEO is named.

One candidate who will not be considered for the CN CEO position is Jim Vena, a former Union Pacific executive who had been pushed for the position by an activist investment firm that is seeking to oust the current CN management team

Vena, who had been supported by TCI Fund Management, informed the CN search committee reviewing CEO candidate that he is no longer interested in the position.

Vena had interviewed several times with the committee for the post. In addition to his work for UP, Vena also once worked as a CN manager, including serving as chief operating officer. He held the same position at UP until January 2021.

CN CEO Ruest to Retire in January

October 21, 2021

Canadian National CEO Jean-Jacques Ruest will retire in January.

In a news release, CN said Ruest had deferred discussing his retirement plans in order to see through the proposed merger with Kansas City Southern, which was called off after the U.S. Surface Transportation Board rejected CN’s request to place KCS stock in a voting trust while regulators reviewed the merger.

The news release said CN would conduct a global search for a new CEO and that Ruest might stay on in his post beyond January if need be until a new CEO is hired.

Ruest has worked for CN for more than 25 years and been CEO since 2018.

In an unrelated development, CN said it earned during the third quarter of 2021 revenue of CA$3.6 billion, up 5 percent from the same period a year ago; operating income of CA$1.34 billion, up 2 percent; adjusted operating income of CA$1.5 billion, up 8 percent.

Diluted earnings per share were CA$2.37, up 72 percent while adjusted diluted earnings per share were CA$152, an increase of 10 percent.

The operating ratio improved 2.8 points to 62.7 percent. The adjusted operating ratio of 59 percent was a gain of 0.9 points.

CN said operating income and operating ratio were affected by transaction-related costs for the unsuccessful bid to acquire KCS.

CN Fights Back Against TCI Claims

October 4, 2021

Canadian National is fighting back against by an activist investment firm seeking to change the railroad’s management.

TCI Fund Management  wants to replace CN CEO J.J. Ruest, Chairman Robert Pace and name five new members of the CN board of directors.

Late last week CN said TCI’s claims about CN finances are “false or misleading.” It also said TCI has yet to acknowledge that it is a leading shareholder in Canadian Pacific, one of CN’s chief competitors.

CN said TCI has yet to offer a credible plan to create value for shareholders.

 “CN has announced an ambitious strategic plan to deliver immediate and long-term shareholder value, while retaining our commitment to safety, customer service and the communities we serve. This plan builds on the investments we have made in technology and capacity over the past three years to drive long-term sustainable growth in total revenues and operating margins,”  Ruest said in a statement referencing the Full Speed Ahead plan to reduce CN’s operating ratio, cut capital spending, and increase shareholder returns through a combination of earnings growth and share buybacks.

TCI has dismissed the Full Speed Ahead plan and raised questions about whether CN management could successfully follow through on its goals.Based in London, TCI holds $4 billion in CN stock.

Investor Seeks to Name 4 to CN Board

September 14, 2021

An activist hedge fund had requested a special meeting of the shareholders of Canadian National in an effort to shake up the board of director’s composition.

TCI Fund Management has named four individuals it will nominate for the railroad’s board of directors.

“We did not seek a proxy fight but without urgent action CN’s operational and financial performance will continue to lag its peers under a board that lacks the right railroad experience and operational expertise,” said Chris Hohn, TCI founder and managing partner in a statement.

CN said in its own statement that it knows about the TCI request but has yet to receive the formal requisition. The railroad said that once it does, it will review it and comment further.

Hohn has called for replacing CN Chairman Robert Pace and ousting CEO J.J. Ruest. He also wants CN to drop its bid to acquire Kansas City Southern.

CN is CN’s second-largest investor. It has proposed naming to the CN board Allison Landry, a former transportation analyst at Credit Suisse who is currently a board member of XPO Logistics;  Rob Knight, who was chief financial officer at Union Pacific for 15 years before retiring in 2019; Paul Miller, a Canadian Nation executive from 1978 to 2011, retiring as vice president of safety, sustainability, and network transportation;  and Gilbert Lamphere, a former CN and Illinois Central board member.

They would replace current board members Pace, Kevin Lynch, James O’Connor, and Laura Stein.

Hedge Fund Pressing Effort to Oust Top CN Management

September 4, 2021

An activist hedge fund that controls more than 5 percent of stock in Canadian National said it will press other investors to support a call to replace the railroad’s top management.

A partner in TCI Fund Management told a Toronto newspaper that his firm has been speaking with other large investors who are likewise disenchanted with CN management.

TCI began demanding the resignation of CN CEO J.J. Ruest and Chairman Robert Pace after the U.S. Surface Transportation Board rejected a plan by CN to place Kansas City Southern into a voting trust as a first step toward acquiring KCS.

Walker told the Globe and Mail that the next steps toward replacing Ruest and Pace will hinge on what other shareholders do.

TCI is the second-largest CN stockholder and also holds a large share of stock in Canadian Pacific.

CN Says It Has Recovered from Pandemic Downtown

July 21, 2021

Canadian National said this week that its posted gains in second-quarter earnings and traffic, with nearly every traffic category growing in volume.

CN managers during an earning call said the results reflected a recovery from the COVID-19 pandemic-induced downtown.

Operating income skyrocketed by 76 percent, to $1.38 billion, as revenue grew 12 percent, to $3.6 billion.

Adjusted for the impact of one-time items, earnings per share increased 16 percent, to $1.46. The operating ratio was 61.6 percent, down from 75.5 percent a year ago but up 1.2 points when last year’s second quarter is adjusted for the impact of one-time items.

On a carload basis, overall volume was up 14 percent. It was up by 13 percent when measured by revenue ton-miles, the preferred metric of Canadian railroads.

The strongest traffic growth occurred in industrial products, intermodal, and propane traffic.

“Our results reflect broad-based trends and forward momentum across all of our business, and also the enduring power of our vast and diversified CN network,” CEO J.J. Ruest said.

CN said its terminal dwell and car miles per day improved, while average train speed was down 2 percent, to 19.5 mph.

The Montreal-based carrier set a quarterly record for fuel efficiency and posted a record low employee personal injury rate. The train accident rate also declined.

CN continues to say that its outlook for the remainder of the year will be high single-digit volume growth and double-digit growth in earnings per share.

CN Net Income Fell in 1st Quarter

April 28, 2021

Canadian National executives said this week that they expect freight volume growth in the high single digit percentage range this year.

They made the assessment when announcing first quarter financial results that showed a drop in net income.

At the same time CN said it experienced during the quarter record intermodal and grain traffic.

Management expects an improving economy to boost merchandise traffic.

For the first quarter, CN said  net income fell 3.7 percent to CA$974 million, or $1.37 per diluted share, from CA$1.01 billion, or $1.42 per diluted share, in the same period a year ago.

The total revenue of CA$3.5 billion for the quarter was “in line” with the same quarter in 2020, CN said in a news release.

Operating income rose 9 percent to CA$1.3 billion, but adjusted operating income of CA$1.2 billion was down 2 percent.

The statement described the first quarter results as “solid,” and included a year-over-year increase in traffic volume of 5 percent.

During a conference call to discuss the first quarter results, CN executives said they expect double-digit growth in earnings per share, up from between 7 percent and 9 percent.

CN’s first quarter volume was up 7 percent based on carloads or 5 percent based on revenue ton-miles, the preferred metric of the Canadian railways.

“Here at CN, we’re off to a good strong running start,” CN CEO JJ Ruest said during the earnings call.

Intermodal revenue ton-miles was up 19 percent while grain and fertilizers shipments rose 26 percent.

First quarter volume, based on gross ton miles, was a record.

At the same time, average train speed dipped 1 percent. Terminal dwell times held steady and car miles per day were up 5 percent.

During the period train length rose 5 percent, leading to a fuel efficiency improvement of 4 percent.

The operating ratio of was 62.5 percent with an adjusted OR of 66.3 percent for the quarter. A year ago, CN had an operating ratio or adjusted operating ratio of 65.7 percent.

CN Expects to Reach Deal with KCS Soon

April 27, 2021

Canadian National is confident it will be able to reach an agreement to purchase Kansas City Southern in the next 30 to 40 days.

The KCS board of directors agreed over the weekend that it would consider CN’s $33.7 billion offer.

Earlier KCS had agreed to a $29 billion merger offer from Canadian Pacific.

CN management will review this week confidential KCS data and talk about a final merger agreement with their KCS counterparts.

CP has sought to discourage the CN bid by saying it would be anti-competitive and unable to receive regulatory approval due to broad overlap between the CN and KCS systems in the middle of the country, particularly along the former Illinois Central system that CN owns.

However, CN CEO JJ Ruest has countered that his company’s bid would offer KCS shareholders 21 percent more than the CP deal.

Although CN has acknowledged that its acquisition of KCS would reduce competition between Baton Route and New Orleans, CN Chief Operating Officer Rob Reily said his company will remedy that, indicating one step might be selling some lines in the region to another railroad.

Since CN announced its bid for KCS some 500 letters of support for the CN bid have poured into the U.S. Surface Transportation Board.

CN, CP Jockey to Gain Advantage in Buying KCS

April 21, 2021

Canadian National and Canadian Pacific submitted dueling filings to the U.S. Surface Transportation Board on Wednesday as they jockey for advantage in their respective efforts to by Kansas City Southern.

The KCS board of directors has already agreed to a $29 billion bid from CP, but CN this week countered with a $33.7 billion offer in a cash and stock transaction.

CN notified the STB of its bid for KCS while CP asked regulators to expedite their review and approval of its purchase of the smallest Class 1 rail system in North America.

In its filing, CN said it plans to file an application seeking authority to combine with KCS.

The filing indicate that CN would seek to have the merger reviewed under the STB’s current merger rules whereas CP is seeking to have its acquisition of KCS reviewed under an exemption regulators granted KCS more than 20 years ago were it to seek a merger with another Class 1 system.

The CN filing cited “seamless service and enhanced competition” from its acquisition of KCS.

It further asserted that its proposed acquisition of KCS would be in the public interest and CN would welcome the opportunity to provide a full forum for stakeholders to comment on the proposed transaction.

CN said it is confident it will be able to effectively address any reasonable remediation concerns and ensure rail customers and other stakeholders benefit from the proposed combination with KCS.

If CN and KCS were to merger, it would create the fifth largest Class 1 North American system. Currently there are seven such systems.

“Our proposal to KCS is simple,” said CN President and CEO Jean-Jacques Ruest. “We are providing greater and more certain value, and a clear path to closing. We have a better bid. We are a better railroad. We will be a better partner for KCS and the communities it serves. And we believe the STB and our customers will recognize that CN presents the best solution for the continued growth, development and prosperity of the North American economy.”

For its part, CP claimed that CN’s acquisition of KCS would reduce competition.

It called CN’s stated benefit to acquiring KCS “illusory and inferior to the proposed CP/KCS transaction.”

CP said the STB should promptly confirm uniquely what it termed straightforward and beneficial transaction proceeding under the pre-2001 rules with no further voting trust approval required.

In a letter to regulators, CP said it “respectfully suggests that the Board should see things the same way: the only combination involving KCS that is in the public interest is the one that Canadian Pacific has proposed, and which has already garnered support from more than 400 shippers and other stakeholders.”

A CN-KCS merger, CP asserted, would “destabilize” the North American rail network balance “that has prevented further consolidation of the six largest railroads for two decades.”

If CP were to lose its friendly connection at Kansas City with KCS, it would weaken if not destroy the viability of CP’s lines through southeastern Iowa and northern Missouri and leave CP an asymmetrically disadvantaged “odd-man-out” in a six-railroad North America.

That would put pressure on CP to find a way to expand its market reach through further consolidation.

CN has argued that its combination with KCS would offer shorter, faster, and more efficient routes than tying together the CP and KCS networks.

The war of words in the dueling filing with the STB is likely to result in CP having to pony up more money for KCS, some industry analysts believe.

“We can’t rule out a full-scale bidding war,” Wolfe Research analyst Scott Group wrote in a note to clients.

Another analyst, Anthony Hatch, told Trains magazine, CP has room to increase its bid although CN is seen as the wealthier Canadian Class 1 system.

The last time Class 1 railroads got into a bidding war was in 1996 when CSX and Norfolk Southern fought over Conrail.

That battle ended with NS and CSX dividing Conrail and the railroads paying 27 percent more to buy their respective shares.

Although industry observers predict the STB would likely approve acquisition of KCS by either CN or CP, some believe a CN-KCS combination would create more regulatory challenges  because the two systems have more overlap than CP and KCS.

 “While financially superior and strategically compelling, CN’s proposal may entail a more complicated regulatory review given the larger pro forma rail network,” Baird Equity Research analyst Garrett Holland wrote in a note to clients.

Holland believes CP will submit a higher bid for CP and rely heavily on the argument that it provides better strategic value and a potentially more feasible regulatory review process.

Credit Suisse analyst Allison Landry said, though, that the ovetlap between CN and KCS is relatively small and largely confined to a handful of shippers in Louisiana.

At the same time Landry said in a note to clients that a CN-KCS deal that create a railroad larger than CSX or NS would make those carriers merger targets.