CN (TSX: CNR, NYSE: CNI) today responded to the numerous misleading
claims and inconsistencies in recent disclosures by CIFF Capital
and TCI (collectively “TCI”), which, in addition to being a
shareholder of CN is the largest shareholder of Canadian Pacific
("CP"), CN’s direct competitor and Canada’s second-largest Class 1
railroad.
As CN highlights below, these erroneous claims include:
- False or misleading
characterizations of CN’s performance;
- Inaccurate description of financial
risks associated with CN’s bid for Kansas City Southern (“KCS”) and
refusal to acknowledge that CN walked away with an incremental $700
million amongst other strategic benefits;
- Failure to provide a credible or
differentiated plan; and
- Failure to acknowledge concerns
over the fact that TCI is the largest shareholder of CN’s principal
competitor.
“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. CN maintains an open and constructive dialogue with its
shareholders, including discussions about areas where we can
improve our business performance, but we will not indulge unfounded
and bad-faith arguments that serve the interests of one shareholder
over others – or of one of our competitors over CN. CN’s Board and
senior management team are intently focused on putting forward
ideas, initiatives and people that drive us forward to where CN and
the railroad industry are going, not where it’s been.”— JJ Ruest,
President and Chief Executive Officer of CN
CN remains fully committed to a long-term,
sustainable growth strategy, with a focus on operational
excellence, a customer-first culture, innovation and ESG
leadership. On September 17, 2021, CN announced a comprehensive
strategic plan with specific and measurable targets, including a
target of approximately $700 million of additional operating income
and a 57% OR for 2022, alongside plans to complete the remaining
C$1.1 billion of its C$1.5 billion share repurchase plan,
previously authorized by CN’s Board of Directors in January 2021,
and embark on a new share repurchase plan of approximately $5
billion in 2022.
TCI, which has a glaring conflict of
interest as CP’s largest shareholder, is trying to assert effective
control over CN without presenting a credible plan to create
superior or sustainable value
As we will demonstrate more fully in due course,
TCI’s critiques of the Company and its performance are largely
false or misleading. This includes portraying CN’s adjusted
operating income, adjusted earnings per share and free cash flow as
lower in the second quarter of 2021 than they were in the second
quarter of 2018. In fact, each of these metrics increased
measurably when calculated on a trailing 12-month basis ending in
such periods, which is much more meaningful to demonstrate trends
in underlying performance. TCI also mischaracterizes both executive
compensation and OR at CN. TCI also omits the fact that much of
CN’s capital spending during this period was needed to invest in
technology to enhance safety and reliability, renew CN’s locomotive
fleet and build network capacity and resiliency to lay the
foundations for growth in total revenues and operating margins.
TCI is a recent 5% shareholder seeking to
install its hand-picked CEO and elect five directors (including the
CEO) to a board of 11, but it has yet to put forward a
differentiated or credible plan for creating sustainable value for
CN’s customers, shareholders and communities. Material published
this week by TCI contains only one paragraph about its plans for
CN, and what they say sounds remarkably similar to what CN is
already doing.
TCI’s motives are highly suspect. Earlier this
year, TCI worked constructively with CN, encouraging it to be a
leader and present its Climate Action Plan to its shareholders for
approval. By all accounts, it appears TCI then voted in favour of
CN’s directors, say-on-pay and Climate Action Plan at the company’s
Annual General Meeting on April 27, 2021. So did the
overwhelming majority of CN shareholders. At the AGM, all directors
received greater than 95% of votes in favour, and the Company’s say
on pay resolution passed with 97.7% support.
Notably — this expression of overwhelming
support was one week after CN announced its first
proposal to buy KCS. Nothing of substance has changed since then,
except for our increased bid for KCS, which secured an agreed
transaction with KCS, and the pro-competition commitments we made
in our submissions to the Surface Transportation Board, which while
demonstrably positive for CN, have been costly and may yet be
problematic for CP. It was only after this that TCI increased its
stake in CN and began attacking the company publicly.
CN’s pursuit of KCS was a strategic move
that resulted in significant benefits for CN’s shareholders and
stakeholders
Contrary to the false narrative TCI is
propagating, CN’s bid for KCS was the right strategic move for CN,
and it resulted in multiple benefits for CN. CN’s Board and
management team ran a thoughtful engagement and scenario planning
process leading up to the executed merger agreement to buy a
strategic asset and to protect long-term shareholder interests. All
claims by TCI of CN facing US$2 billion losses have been proven to
be blatantly false; in fact, CN gained US$700 million in break-up
fees.
CN shareholders should question TCI’s motives of
endorsing CN’s closest competitor to pursue the transaction, while
ignoring the equally compelling rationale of CN’s interest of
pursuing the same transaction. CN believes the critical difference
is that CP has limited long-term growth opportunities without KCS,
while CN’s future as a standalone business is bright. On this
point, CN agrees with TCI: CN has indeed built, “a unique asset –
the best rail network in North America.”
CN’s Board and management team share a
singular focus to execute on opportunities that are in the best
interest of CN stakeholders.
CN has a strong and diverse Board of Directors
that includes three new independent directors elected for the first
time in April 2021. CN’s Board is confident that CN’s management
team has the capabilities to deliver on the goals set out in its
strategic plan and lead the Company into the exciting next phase of
CN’s growth and industry leadership. With significant railroad
industry experience, including four new senior leaders appointed
over the past few years, and a focus on customer value, operational
excellence, safety, environmental sustainability and social
inclusion, CN’s management team is ready to win for the future and
to continue building the premier railway of the 21st century.
In the last year, CN has announced significant
enhancements to its corporate governance profile, including an
annual advisory vote on the Company’s Climate Action Plan,
appointing three new independent directors to the Board, reducing
the size of the Board to ten independent directors, plus the CEO,
lowering the mandatory retirement age, confirming term limits, and
achieving gender parity among independent directors ahead of
plan.
Chairman Robert Pace will be retiring from the
Board and a new Chair will be appointed by the Board in due course.
All appointments by the Board will be done with the best interests
of all shareholders and members of CN’s stakeholder community in
mind.
Mr. Pace’s retirement was disclosed in March
2021 as Mr. Pace has reached the tenure limit under the governance
practices clearly set out in CN’s 2021 Proxy Circular. The fact
that TCI continues to beat its chest about seeking the removal of
Mr. Pace is empty posturing.
About CNCN is a world-class transportation
leader and trade-enabler. Essential to the economy, to the
customers, and to the communities it serves, CN safely transports
more than 300 million tons of natural resources, manufactured
products, and finished goods throughout North America every year.
As the only railroad connecting Canada’s Eastern and Western coasts
with the U.S. South through a 19,500-mile rail network, CN, and its
affiliates have been contributing to community prosperity and
sustainable trade since 1919. CN is committed to programs
supporting social responsibility and environmental stewardship.
Forward-Looking StatementsCertain statements
included in this news release constitute “forward-looking
statements” within the meaning of the United States Private
Securities Litigation Reform Act of 1995 and under Canadian
securities laws, including statements based on management’s
assessment and assumptions and publicly available information with
respect to CN. By their nature, forward-looking statements involve
risks, uncertainties and assumptions. CN cautions that its
assumptions may not materialize and that current economic
conditions render such assumptions, although reasonable at the time
they were made, subject to greater uncertainty. Forward-looking
statements may be identified by the use of terminology such as
“believes,” “expects,” “anticipates,” “assumes,” “outlook,”
“plans,” “targets,” or other similar words.
Forward-looking statements are not guarantees of
future performance and involve risks, uncertainties and other
factors which may cause actual results, performance or achievements
of CN to be materially different from the outlook or any future
results, performance or achievements implied by such statements.
Accordingly, readers are advised not to place undue reliance on
forward-looking statements. Important risk factors that could
affect the forward-looking statements in this news release include,
but are not limited to: the duration and effects of the COVID-19
pandemic, general economic and business conditions, particularly in
the context of the COVID-19 pandemic; industry competition;
inflation, currency and interest rate fluctuations; changes in fuel
prices; legislative and/or regulatory developments; compliance with
environmental laws and regulations; actions by regulators;
increases in maintenance and operating costs; security threats;
reliance on technology and related cybersecurity risk; trade
restrictions or other changes to international trade arrangements;
transportation of hazardous materials; various events which could
disrupt operations, including illegal blockades of rail networks,
and natural events such as severe weather, droughts, fires, floods
and earthquakes; climate change; labor negotiations and
disruptions; environmental claims; uncertainties of investigations,
proceedings or other types of claims and litigation; risks and
liabilities arising from derailments; timing and completion of
capital programs; and other risks detailed from time to time in
reports filed by CN with securities regulators in Canada and the
United States. Reference should also be made to Management’s
Discussion and Analysis in CN’s annual and interim reports, Annual
Information Form and Form 40-F, filed with Canadian and U.S.
securities regulators and available on CN’s website, for a
description of major risk factors relating to CN.
Forward-looking statements reflect information
as of the date on which they are made. CN assumes no obligation to
update or revise forward-looking statements to reflect future
events, changes in circumstances, or changes in beliefs, unless
required by applicable securities laws. In the event CN does update
any forward-looking statement, no inference should be made that CN
will make additional updates with respect to that statement,
related matters, or any other forward-looking statement.
2021 Key Assumptions CN has
made a number of economic and market assumptions in preparing its
2021 outlook. The Company assumes that North American industrial
production for the year will increase in the high single-digit
range and assumes U.S. housing starts of approximately 1.45 million
units and U.S. motor vehicle sales of approximately 16 million
units. For the 2020/2021 crop year, the grain crop in Canada was
above its three-year average and the U.S. grain crop was in line
with its three-year average. The Company now assumes that the
2021/2022 grain crops in both Canada and the U.S. will be below
their respective three-year averages (compared to its July 20, 2021
assumption that both would be in line with their respective
three-year averages). CN now assumes total RTMs in 2021 will
increase in the mid single-digit range versus 2020 (compared to its
July 20, 2021 assumption of an increase in the high single-digit
range). CN assumes continued pricing above rail inflation. CN
assumes that in 2021, the value of the Canadian dollar in U.S.
currency will be approximately $0.80, and that in 2021 the average
price of crude oil (West Texas Intermediate) will be approximately
US$60 per barrel.
2022 Key Assumptions CN has
made a number of economic and market assumptions in preparing its
2022 targets. The Company assumes that North American industrial
production for 2022 will increase in the mid single-digit range in
2022 and assumes U.S. housing starts of approximately 1.57 million
units and U.S. motor vehicle sales of approximately 16.9 million
units. The Company assumes that the 2021/2022 grain crops in both
Canada and the U.S. will be below their respective three-year
averages. CN assumes the RTMs in 2022 will increase in the low
single-digit range versus 2021. CN assumes continued pricing above
rail inflation. CN assumes that in 2022, the value of the Canadian
dollar in U.S. currency will be approximately $0.80, and that in
2022 the average price of crude oil (West Texas Intermediate) will
be approximately US$65 per barrel.
Non-GAAP MeasuresCN reports its financial
results in accordance with United States generally accepted
accounting principles (GAAP). CN also uses non-GAAP measures in
this news release that do not have any standardized meaning
prescribed by GAAP, such as adjusted performance measures. These
non-GAAP measures may not be comparable to similar measures
presented by other companies. For further details of these non-GAAP
measures, including a reconciliation to the most directly
comparable GAAP financial measures, refer to the attached
supplementary schedule, Non-GAAP Measures.
CN's full-year 2021 adjusted diluted EPS
outlook excludes the expected impact of certain income and
expense items. However, management cannot individually quantify on
a forward-looking basis the impact of these items on its EPS
because these items, which could be significant, are difficult to
predict and may be highly variable. As a result, CN does not
provide a corresponding GAAP measure for, or reconciliation to, its
adjusted diluted EPS outlook.
Contacts:
MediaCanadaMathieu GaudreaultCN
Media Relations & Public Affairs(514)
249-4735Mathieu.Gaudreault@cn.caLongview Communications &
Public AffairsMartin Cej / Boyd Erman(403) 512-5730 / (416)
523-5885mcej@longviewcomms.caberman@longviewcomms.caUnited
StatesBrunswick GroupJonathan Doorley / Rebecca Kral(917)
459-0419 / (917)
818-9002jdoorley@brunswickgroup.comrkral@brunswickgroup.com |
Investment
CommunityPaul ButcherVice-PresidentInvestor Relations(514)
399-0052investor.relations@cn.ca |
Canadian National Railway (TSX:CNR)
Historical Stock Chart
From Mar 2024 to Apr 2024
Canadian National Railway (TSX:CNR)
Historical Stock Chart
From Apr 2023 to Apr 2024