TCI Fund Management Inc., an activist investor in CN Rail, outlined its plan to improve returns at Canada’s l

Company ‘needs to raise its game’ due to rival’s win in acquisition fight

The activist investor pushing for change at Canadian National Railway Co. has outlined its plan to improve returns at Canada’s largest railway with a greater focus on efficiency under a new chief executive.

TCI Fund Management Ltd., which is run by billionaire Chris Hohn, spelled out in a presentation Monday how it believes Canadian National can improve its operations and culture and reduce costs. TCI argues in the 102-page document it’s imperative for CN to make changes now after its smaller rival, Canadian Pacific Railway Ltd., agreed to acquire Kansas City Southern.

“CP will be a much stronger competitor, so CN needs to raise its game urgently to prepare for a tougher competitive environment,” TCI said in the presentation, a copy of which was reviewed by Bloomberg.

TCI, which owns more than five per cent of Canadian National, argues CN’s priority should be to expand the business.

The firm said the railway needs to invest in its network and technology to create more capacity, improve fluidity and connect new customers to the railway.

The fund also says CN needs to aggressively market itself to customers as an environmentally friendlier alternative to trucks.

In its presentation, it again called on CN to appoint its four director nominees to increase the board’s industry expertise. It also urged the board to replace CEO Jean-Jacques Ruest, who has a marketing background, with former chief operating officer Jim Vena, whose career has been focused on railway operations.

A representative for CN wasn’t immediately available to comment on the presentation.

CN has been locked in a battle with the London-based TCI since August, when the firm raised concerns about the railway’s doomed pursuit of a $30billion (U.S.) takeover bid for Kansas City Southern. TCI has argued the takeover would never get approved by regulators and exposed CN to potentially $2 billion (U.S.) in fees it would have to pay.

After TCI announced it would wage a proxy battle, CN unveiled a plan to cut spending, streamline management and buy back $5 billion of stock next year.

It has accused TCI of having a conflict of interest because it’s the largest shareholder in Canadian Pacific. A shareholder meeting is scheduled for March 22.

Canadian National also said it was paid a $700-million termination fee after Kansas City Southern opted for the Canadian Pacific deal.

It said TCI is misleading investors and argues it has the right management team and plan in place to improve its performance.