Canadian Pacific Hires Canadian National Executive As COO

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February 5, 2013 2:18 PM EST

Hunter Harrison, brought in to engineer a turnaround at Canadian Pacific Railway, has tapped a former protege as the company's president and chief operating officer.

CP said on Monday that Keith Creel would join on Tuesday from Canadian National Railway,, the railroad that Harrison had previously run.

Creel, who is widely expected to succeed Harrison eventually at the helm of CP, was previously executive vice president and chief operating officer at CN Rail - a job he had held since 2010.

Harrison became CP's chief executive officer last year after a bruising proxy battle led by William Ackman's Pershing Square Capital Management Ltd, the U.S. hedge fund that is the company's largest shareholder, with a stake of about 14 percent.

Harrison, Ackman's preferred candidate for the job, turned CN into North America's most efficient railroad during his period as CEO, and it had been widely expected that he would ask Creel to follow him to CP.

"Creel would be a natural successor," said Morningstar analyst Keith Schoonmaker. "Who better to execute Hunter Harrison's operating plan than the chief operating officer that he groomed to do it at another railroad that also has operations in Canada and the U.S.?"

Harrison has already hinted that the railroad's next COO could be its next boss. Last fall he told analysts that his time at CP would not be "a long journey" and that he only planned to stay at the helm for three to five years.

"Obviously the selection of a COO would be some indication that here's the next successor, if they don't blow it," Harrison said at the time.

Harrison's push to turn CP's worst-in-class operating efficiency around through sweeping job cuts, new labor deals, shutting down inefficient operations and shelving a costly expansion has already resulted in profit forecasts that exceed analysts' expectations.

CP's former COO, Mike Franczak, resigned in October, just a few months after CEO Fred Green and Chairman John Cleghorn quit following the proxy battle.

POSITIVE MOVE

"Creel is a highly regarded rail operations executive so we view his addition to CP's executive team as unambiguously positive," National Bank Financial analyst Cameron Doerksen said in a research note.

CN Rail confirmed Creel's departure in its own press release and said it would soon announce a replacement.

CN, Canada's biggest rail carrier, also said it had reached a settlement with CP and Harrison over a lawsuit filed more than a year ago. In the lawsuit, CN accused Harrison of breaching noncompete obligations when he joined CP.

As part of the settlement, CP will not hire certain CN employees until after December 31, 2016, CN said, adding that additional terms of the settlement were confidential.

Analysts did not expect Creel's departure from CN to affect CN's operations.

"We view this as a positive to both companies as it eliminates a distraction for CP's current CEO and it reduces further 'poaching risk' for CN out to 2017," RBC Dominion Securities analyst Walter Spracklin said in a research note.

CP shares, which have surged more than 50 percent since Harrison took the reins, were off 1.7 percent at C$113.82 in midday trading on the Toronto Stock Exchange, while CN was down 0.3 percent at C$95.40.

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