TD Fall Investing GuideTD Fall Investing Guide
Fri, 25 Oct 2013 18:15:00 GMT | By Deirdre McMurdy, MSN Money

Bill Ackman: greedy opportunist or folk hero?

CP Rail may be proof of the long-term merits of short-term gains.


Deirdre McMurdy

Bill Ackman hit. And now he’s running.

After his acrimonious public battle last year to seize control of CP Rail, shake it up and improve its returns, Ackman’s firm, Pershing Square Capital Management, has now sold off a big chunk of his investment. At a tidy profit of course.

If any proof was ever required that his assault on the venerable rail company and its senior management was not personal, there it is. He came in with a clearly defined objective, did what he said he’d do, made money, and is now moving on to the next target.

It begs the question: Is he a greedy opportunist or a folk hero?

After all, every other shareholder — from individual shareholder to massive pension fund — stands to reap rewards from the risk Ackman took, and the costs he incurred to foist his agenda on the company.

That agenda appears to have been, literally, on the money: At a time when the outlook for third-quarter corporate earnings reflects stagnant economic growth, CP Rail has just posted a record performance. Not only that, the stock price has tripled since Pershing Square began its incursion.

Sure enough, under the firm hand of Hunter Harrison, former CEO of CN Rail and Ackman’s choice for CP, the company has improved its operating performance significantly.

In other words, Ackman’s plan to improve focus and efficiency has been successfully executed. And it’s time for him to cash out.

But are a couple of good quarters and a pop in share price really a legitimate measure of success? Does the long-term pain ultimately eclipse short-term gains? Or are those short-term gains, in fact, the foundation for a more sustainable profitability?

It’s not a new debate, but it’s certainly becoming a more urgent one.

In a business that’s full of reviled characters, there are few more reviled than the “activist investors” who swoop down on companies that are under-valued and put them on the corporate equivalent of a crash diet. That usually means rousting entrenched management, selling assets, streamlining operations, reducing staff and squeezing every dime possible from the balance sheet.

Sometime over the course of the financial crisis and ensuing recession, hedge fund managers rebranded themselves as “activist investors.” The new label is supposed to cast a more flattering light on their disruptive, aggressive actions, emphasizing the merits of the plans they bring to — or actually force upon — the boardroom table.

(Continued)
Scroll upScroll down

Recently recommended stories