(Reuters) — Canadian Pacific Railway is planning to relocate much of its head office from downtown Calgary, union officials and a source close to the company said, under a restructuring plan its new chief executive will detail to investors in early December.
Chief executive Hunter Harrison told union leaders in the United States and a Canadian union president that Canada's second biggest railroad will move employees out of its glass-towered headquarters as part of an ambitious cost-cutting plan.
Harrison, a hard-driving, 50-year veteran of the rail industry, was appointed CEO in June to turn around the underperforming railway after a bruising proxy battle ousted his predecessor, as well as the previous chairman and several directors. He is the hand-picked choice of CP's biggest shareholder, William Ackman's Pershing Square Capital Management, who launched the proxy fight.
One union official said the head office move was to a nearby Calgary rail yard that CP owns. Details are expected Dec. 4 and 5, along with an announcement of further job cuts, when Harrison outlines his plan to improve efficiency at CP.
"They're moving the headquarters to Ogden, which just makes sense," said Bill Brehl, president of the Teamsters Canada Rail Conference Maintenance of Way union.
"We're a railroad. What were we doing downtown hanging out with the oil barons? Our place is to be in a rail yard," said Brehl, who was told of the plan by Harrison.
Brehl said the company will rebuild the century-old Ogden yard, constructing offices there. CP decided last year to close the Ogden repair shop, constructed in 1912 on land southeast of Calgary's city centre. It moved locomotive and train car repair elsewhere.
A CP spokesman declined to comment when asked to confirm the move.
A source close to the company, who asked not to be identified, said CP will maintain a reduced downtown presence consisting of a boardroom and small number of offices.
The change aims to trim the cost of operations over the long term, the source said. "Downtown is very expensive. There is a lot of real estate around the yards," the source said.
James Nelson, general chairman of the United Transportation Union, said he attended a meeting in Chicago with other U.S. labour leaders in late September where Harrison said CP would save $19 million annually from the move.
Downtown Calgary, Canada's oil industry capital, is the nation's second most expensive office market behind Toronto, according to a July 2012 report by global research firm CBRE.
CP shifted its head office to Calgary from Montreal in 1996, in a company-wide reorganization that eliminated 1,450 jobs.
Plan to pick up efficiency
Harrison, the former CEO of CP's bigger rival, Canadian National Railway, has promised to dramatically improve CP's operating ratio from 74.1 per cent in the most recent quarter to 65 per cent by 2016.
Operating ratio, a closely watched efficiency gauge in the rails, measures the share of operating revenues used for operating costs. The higher the ratio, the less efficient the operation, and CP's is the highest of North America's big railroads.
As part of the cost-cutting plan, Harrison told analysts and investors last month that five to 10 per cent of the company's headcount would be eliminated, with a focus on management positions and jobs in the Calgary headquarters. CP had about 14,500 employees at the end of the third quarter.
Harrison told U.S. union officials in late September that CP was looking at closing costly hump yards, which are used to sort cars, in parts of Canada and Bensenville, Ill., Nelson said.
At the same meeting, Harrison also said that CP planned to sell the 365-mile section of its DM&E rail line west of Pierre, S.D., Nelson said.
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