Case Name :      Canadian Pacific Ltd: Unlocking Shareholder Value in a Conglomerate

Authors :           Michael R King, Michael Zawalsky

Source :             Ivey Publishing

Case ID :            W14241

Discipline :        Finance

Case Length :    14 pages

Solution Sample availability : YES

Plagiarism : NO (100% Original work)

In January 2001, the chief executive officer (CEO) of Canadian Pacific Limited (CPL) was contemplating the future of his firm. CPL was one of Canada’s oldest conglomerates with operations in railways, shipping, natural resources and hotels. Its stock market capitalization of CDN$13.5 billion reflected a conglomerate discount, estimated at 12 to 35 per cent of the value. In order to eliminate this conglomerate discount and maximize shareholder value, the CEO weighed the pros and cons of asset divestitures or spinoffs. Would it make sense to keep some of the related business together to preserve economies of scale and scope and to maintain synergies? What would be the tax implications of each option? There were numerous operational and legal implications to consider. Knowing he had to make a decision quickly, the CEO looked for the option that would unlock the most value for CPL’s shareholders.