CN railroad faces investor pressure after losing rail deal

OMAHA, Neb. — After walking away from its effort to buy Kansas City Southern railroad earlier this month, Canadian National Railway Co. continues to face investor pressure to make changes in its operation.

The London-based investment firm TCI Fund — which owns about 5% of CN’s stock — is pressing CN to overhaul its board, get a new CEO and improve its own operations. TCI has said that the new strategic plan CN announced after breaking off merger talks isn’t enough to address its concerns about the railroad, so it is still pressing for a special meeting to elect four new directors who would help pick a new CEO.

“CN is not realizing its full potential because of poor management and a lack of oversight from directors who are experienced in railway operations,” TCI said in a document outlining their concerns that it filed with regulators this week. “History has shown that with the right leadership – and a knowledgeable board that holds management accountable – the performance of a railroad can be improved quickly.”

For its part, Canadian National announced plans earlier this month to reinstate share repurchases and commit to $5 billion in buybacks next year. The railroad also said it will also cut about $550 million in costs, including eliminating more than 1,000 jobs with the majority of those coming from the management side of the railroad, and boost revenue by $150 million largely through price increases.

CN CEO JJ Ruest said Canadian National also benefitted from its efforts to acquire Kansas City Southern by learning more about potential growth opportunities and by hearing feedback from many of the railroad’s customers and shareholders. It also received $1.4 billion in breakup fees at the end of the transaction.

“CN’s ambition is to build the premier railway of the 21st century by methodically investing in technologies to deliver high-quality service to customers, improve safety and sustainability, create capacity and reduce costs and delays,” Ruest said at the time the strategic plan was announced. He has led the railroad since 2018.

As part of its plan, CN affirmed its outlook for double-digit growth in earnings per share this year, and it said it expects to improve those bottom line profits by 20% next year.

CN said it has already announced that its board chairman and another board member plan to retire next spring at the next annual meeting. Plus, a third board member resigned from CN’s board earlier this month to focus more on her own business. So there will already be significant turnover on the board in the next year although CN won’t decide who will fill those seats until later.

TCI argues that its board nominees would be the best candidates for those seats because they all have extensive experience in railroading.

Canadian National is one of the largest railroads in North America and it operates nearly 20,000 miles of track crossing Canada and crossing the U.S. Midwest south to the Gulf Coast.

With Canadian National out of the picture, Canadian Pacific railroad is moving forward with its $31 billion plan to acquire Kansas City Southern railroad. The U.S. Surface Transportation Board will scrutinize that deal over the next year before determining whether to approve it.