Canadian Pacific to Split Into 5 Companies
Canadian Pacific Ltd., one of Canada’s biggest and oldest companies, elated investors Tuesday by saying it will split into five publicly traded firms, a move aimed at shedding the conglomerate structure that had dogged its stock.
Canadian Pacific, the $12-billion conglomerate best known for its national railway CP Rail, has long been viewed as ripe for breakup because its parts were perceived as worth more to investors than the whole.
The hotel unit will be Canadian Pacific’s sole business after the massive spinoff to shareholders, expected by fall.
CP Hotels manages some of the world’s best-known luxury properties, including the Fairmont in San Francisco; Royal York in Toronto; and the opulent Banff Springs Hotel in Banff, Canada. It also runs Canada’s Delta chain.
Canadian Pacific also owns mining firm Fording Coal Ltd.; CP Ships, a global shipping firm; and 86% of cash-rich PanCanadian Petroleum Ltd., the country’s top oil and gas explorer and producer.
“Today, all the companies are bigger, stronger, more profitable than they were in the mid-1990s, and they are now ready to thrive as independent public companies,” said Chief Executive David O’Brien.
Canadian Pacific shares surged on the news, rising $3.51, or 10%, to close at $37.45 on the New York Stock Exchange. PanCanadian shares closed unchanged at $28.78, also on the NYSE.
O’Brien said executives considered a number of options, including selling the units, before arriving at the breakup decision. O’Brien, 59, plans to retire once the deal is done.
“Over time, as we worked very hard to build all these companies, they all looked like companies that were well worth keeping, but they didn’t fit well in the conglomerate structure because we weren’t getting full value for them,” O’Brien said.
“So we came to the conclusion that the cleanest and best thing was to give them all a chance to stand on their own in public markets. We thought this was the opportune timing simply because we’re doing so well.”
With the breakup, CP joins a long list of Canadian corporate heavyweights that have recently dropped the conglomerate structure, including Imasco Ltd., Noranda Inc. and Nova Corp.
Canadian Pacific’s stock had been muted despite record financial results. In January it announced net income of about $1.18 billion for 2000, triple 1999 earnings. The rise was due largely to PanCanadian, which saw surging oil and gas prices push earnings to $684 million, again triple the year-earlier results.
PanCanadian had also been discounted because of the huge controlling block of shares owned by Canadian Pacific.
CP Rail, the unit that spawned the other businesses, is expected to make big strides, partly due to a new ability to become involved in merger activities that have driven the growth of its top rival, Canadian National Railway.
A merger involving the two major carriers has already been rumored, and the CEOs have not ruled out the possibility.
