Canadian Pacific Limited

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Canadian Pacific Limited

910 Pearl Street
Montreal, Quebec H3C 3EA
Canada
(514) 395-5151
Fax: (514) 395-7959

Public Company
Incorporated: 1881 as Canadian Pacific Railway Company
Employees: 72,200
Sale: C$10.50 billion (US$9.09 billion)
Stock Exchanges: Montreal Toronto Alberta Vancouver New York London

A Canadian-based conglomerate, Canadian Pacific Limited (CP) has interests in transportation, forest products, natural gas and oil, hotels, and waste management. As Canada’s largest company, CP’s operations are diverse and international in scope. The company operates a rail system of more than 13,000 miles spanning eight Canadian provinces; the Soo Line, a 5,800-mile rail network in the midwestern United States; and a service company providing container shipping between Canada and Europe. CP is engaged in the trucking business in North America. It produces oil and gas from its properties, which were reported in the early 1990s to have reserves of 152 billion barrels of petroleum and 2.2 trillion cubic feet of natural gas. It has coal mining operations with estimated coal reserves in excess of 1.5 billion tons. In addition, the company’s forest products division is a major producer of wood and related products. CP also owns 27 million square feet of industrial and residential properties and owns or manages 25 hotels.

The building of the Canadian Pacific Railway was a demanding battle, both physically and politically. After negative reports from both explorers and surveyors, a long and sometimes bitter parliamentary dispute, and threats of refusal by British Columbia to become part of the Canadian dominion, a contract to build the rail line was finally approved by royal assent on February 15, 1881. The following day, the Canadian Pacific Railway Company was incorporated. A group of railroad professionals, known as The Syndicate, who had come to Canada from Scotland as fur traders, headed up the railroad’s first management team. The Syndicate chose George Stephen, a former president of the Bank of Montreal and one of the principals involved in the organization of the St. Paul, Minneapolis and Manitoba Railway as CP’s first president. Stephen was assisted by CP vice president Duncan Mclntyre, who left his post as president of the Canada Central Railway to help build the country’s first and only transcontinental railroad.

Under the terms of the government contract, CP received C$25 million in investor-subscribed funds and 25 million acres of timberland, which eventually included the land’s subsurface resources. These important assets provided the basis for the company to raise more capital. Several stock issues were floated, and large loans were made to further finance the project. In 1882 the company issued C$30 million worth of CP stock to various New York investment syndicates, followed by the sale of 200,000 shares of common stock the following year. To complete the project, CP floated a C$15 million bond issue through a London-based investment house. Although the company’s contract allowed CP ten years to complete the railroad’s construction, the project took less than half that time. Construction of the main line was completed in 1885. At the time the Canadian Pacific Railway was the longest and costliest railroad line ever built.

The completion of the line had many effects on both the company and the Canadian economy. The subsurface resources acquired in the land deal with the Canadian Parliament put the company into the coal, zinc, lead, gold, silver, and—later—gas businesses. The railway opened the western Canadian prairie for settlement, and CP was involved in agricultural development, including irrigation and wheat farming. A rail connection from the more industrialized eastern regions to the Pacific Coast enabled the company to expand into the export shipping business and opened up many opportunities in the Far East. It was also believed that the railway’s consolidating effect on the Canadian provinces stifled further northern expansion by the United States. The company, then known to most Canadians as the CPR, continued its steady growth well into the mid- 1900s.

The company in its early years added to its already rich natural resource holdings. In 1898 it acquired British Columbia Smelting and Refining Company, and in 1906 merged this and other properties into The Consolidated Mining and Smelting Company of Canada Limited, later known as Cominco Limited. In 1905 CP purchased the Esquimalt and Namaimo Railway and 1.5 million acres of timber on Vancouver Island.

As early as 1920 CP began using all-steel railroad cars. In many instances these units weighed nearly 60 tons, which limited the number of cars that could be pulled by a steam-powered locomotive. The Great Depression and then World War II slowed the introduction of diesel-powered engines to the railroad industry. By 1954, however, CP completed the conversion of its locomotives to diesel-power. Because of the ruggedness of much of the terrain over which CP operates, the company uses some of the largest diesel-powered trains in the world. Capable of hauling 10,000 tons of cargo, these units are powered by as many as 11 diesel engines.

Throughout its first 75 years in business, CP’s explosive growth resulted in poor record-keeping, and only in 1956 did the company institute a comprehensive inventory of its assets. The inventory took seven years. It quickly became apparent that the CP’s vast holdings warranted further exploitation and development. CP formed a wholly owned subsidiary, Canadian Pacific Oil and Gas Limited, in 1958 to develop and explore its mineral rights on more than 11 million acres of company-held western Canada land. With the completion of the CP’s forest and real estate surveys, two more subsidiaries were formed. Marathon Realty Company Limited was incorporated to manage and develop the company’s vast, nationwide real estate holdings. Pacific Logging Company Limited was to be responsible for reforestation and the development of tree farming on CP’s timberlands.

As the survey of company holdings reached completion, it became clear that the development of the CP’s nonrailroad assets needed to be centralized under a separate holding company. CP formed Canadian Pacific Investments Limited in 1962 to administer the development of CP’s natural resources and real estate holdings and to operate as an investment holding company. In 1971 the parent company adopted the name Canadian Pacific Limited.

During most of CP’s first 80 years, the company was owned by foreign interests, primarily by English, French, and U.S. investors. The transition to a majority of Canadian ownership began after the end of World War II and was completed in 1965. In that year, Ian Sinclair, CP’s chairman, assumed control of the company’s burgeoning enterprises. Sinclair brought to bear his influence and power to finally reverse the flow of foreign investment into the company.

In November 1967 the company offered to the public C$100 million in convertible preferred shares of CP stock. At the time, it was the largest single stock issue in Canadian history and provided an opportunity for Canadians to share more directly in the resource development of their country. In 1980 Canadian Pacific Investments Limited changed its name to Canadian Pacific Enterprises Limited (CP Enterprises).

Sinclair took the company into the hotel business in the United States and to locations as distant as Jerusalem. An airline catering business in Mexico City was purchased and Canadian Pacific Airlines Limited (CP Air), which for a time was Canada’s second-largest airline, was formed. Sinclair’s railroading focused on the transportation of goods and raw materials rather than people. At the close of Sinclair’s tenure in 1981, CP’s railroad inventory comprised 69,000 freight cars, 1,300 locomotives, 3,600 maintenance and equipment cars, and only 57 passenger cars.

Sinclair was succeeded by Frederic Burbidge in 1981. Burbidge acquired leadership of a company that was about to have the worst decade in its history. A worldwide recession coupled with extremely poor crop years in the early 1980s in both Canada and the midwestern United States resulted in thousands of empty Canadian Pacific and Soo Line boxcars. Many of CP’s nonrailroad businesses were highly cyclical. CP’s subsidiary PanCanadian Petroleum Limited, one of Canada’s largest gas and oil companies, helped compensate for the rail operations’ poor performance for a time, but with the collapse of oil prices in 1986, the company was faced with profound difficulties.

William Stinson replaced Burbidge as CP’s chairman in 1985. Stinson, who had been with the company for 30 years, starting with CP as a management trainee in 1955, was the youngest chairman in the company’s history. He set out to streamline the company’s operations.

Stinson oversaw the sale of CP’s 52% interest in Cominco Limited, which had become one of the world’s largest zinc producers. By selling off what had been a money-loser since 1981, Stinson raised C$472 million and removed an expensive liability. On the heels of the Cominco sell-off, the company divested itself of CP Air in a C$300 million deal with Pacific Western Airlines. CP Air had not shown any profits since 1980; the sale also eliminated nearly C$600 million in long-term debt. On December 6, 1985, with the consent of both companies’ stockholders, CP and CP Enterprises merged into one company. Under the terms of the merger, CP Enterprises became a wholly owned subsidiary of CP.

After the sale of Cominco and CP Air, Stinson worked to turn around three of CP’s other subsidiaries, AMCA International Limited, a producer of structural steel; the Soo Line; and Algoma Steel Corporation, an Ontario-based steel manufacturer. Stinson’s plan was to focus CP in four major core businesses: freight transportation, natural resources, real estate, and manufacturing. Stinson’s cutbacks, sales, and restructuring had a positive effect, and the company showed a profit of a little more than C$58 million in 1987. One project that Stinson did not attempt to curtail was the construction of the longest railway tunnel in North America. The Macdonald Tunnel, located in British Columbia’s Selkirk Mountains and more than nine miles in length, is named after Sir John Macdonald, a former Canadian prime minister and early supporter of the Canadian transcontinental railroad. The tunnel was completed in 1988.

The years 1988 and 1989 showed little improvement for CP’s financial outlook. The Canadian economy was in a weakened condition. The company’s forest products division reported a net operating loss of more than C$190 million in 1989 because of the depressed market for paper products. Marathon Realty showed a net operating loss that same year of more than C$17 million. The company’s rail division held its own in 1989, however, and CP’s waste services enterprises had a record-breaking year.

As CP entered the 1990s, the company’s restructuring efforts suffered a major setback in a ruling by the Supreme Court of Ontario. Under the court’s decision, CP was prohibited from spinning off Marathon Realty as a separate public company. CP had planned to distribute 80% of the shares of Marathon Realty to its common stock holders while retaining a 20% interest itself. The court ruled that the transaction would penalize CP’s preferred stock holders. At the same time, it appeared that CP’s performance would be further hindered by the lingering weakness in the company’s forest products division.

The company’s rail business increased in 1990, largely because of a resurgence in grain shipments. That year CP acquired the 44% of Soo Line that it did not already own. CP officials expected the transaction to make possible greater integration of the rail systems. Early in 1991 CP bought another rail company, the Delaware and Hudson Railway, operating in the northeastern United States. CP also added to its hotel operations in 1990 with the purchase of an 80% interest in the U.S.-based Doubletree/Compri hotel management group.

Principal Subsidiaries

CP Rail System; Canadian Pacific Steamships, Limited (U.K.); Centennial Shipping Limited (Bermuda); Soo Line Corporation (U.S.A.); Canadian Pacific Express & Transport Ltd.; CanPac International Freight Services Inc; PanCanadian Petroleum Limited (87.1%); Foding Coal Limited; NYCO Minerals, Inc. (U.S.A.); Canadian Pacific Forest Products Limited (79.7%); Marathon Realty Company Limited; Canadian Pacific Hotels Corporation; United Communications Inc.; United Dominion Industries Limited (55.4%); Reserve de 1a Petite Nation; Canadian Pacific Enterprises Limited; Canadian Pacific Securities Limited; Canadian Pacific Securities (Ontario) Limited; Canadian Pacific (U.S.) Holdings Inc.; ConPac Car Inc. (U.S.A.).