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News from The Globe and Mail

BRENT JANG

Tuesday, January 31, 2006

Nearly five years ago, Canadian Pacific Ltd. executives unveiled the conglomerate's "starburst" breakup at a news conference at the landmark Fairmont Royal York Hotel in Toronto. Today, the Fairmont hotel chain itself is on the verge of being sold to Saudi Prince al-Waleed bin Talal's Kingdom Hotels International and investment firm Colony Capital LLC of Los Angeles.

It's not quite the storybook ending that long-time shareholders in Fairmont Hotels & Resorts Inc. had been hoping for, even though the stock has surged 42 per cent since mid-October on takeover speculation. Last Oct. 19, Fairmont dipped to an intraday low of $35.53 -- 37 cents lower than its closing price on its debut in 2001.

Toronto-based Fairmont had been considered a shining star in CP's galaxy of five divisions when CP announced plans on Feb. 13, 2001, to split up, to eliminate the so-called conglomerate discount.

But Fairmont brings up the rear when measuring price gains since its shares first changed hands on the Toronto Stock Exchange. While Fairmont shares are up 41 per cent since the summer of 2001, that's a far cry from the 490-per-cent surge in units of Fording Canadian Coal Trust, another CP spinoff.

Still, investors have reason to smile if they kept their stakes in any of CP's successor firms. All five ex-CP divisions are worth more today than prior to the breakup, so the pledge that the sum of CP's parts would be greater than the whole has turned out to be amply fulfilled.

Merrill Lynch & Co. Inc. established an exchange-traded fund for retail investors to hold the five successor companies to Calgary-based CP. Those depositary receipts, traded on the TSX under ticker symbol HCH, rose $2.70 yesterday to $140.45. That's up 150 per cent from CP's stock price of $56.10 at the closing bell Aug. 21, 2001, when the conglomerate spun off its divisions on a "when-issued basis" on the TSX.

Here's how the five former CP units have fared since August, 2001. The calculations of share price gains on the TSX exclude dividends, but are adjusted for stock splits, mergers and takeovers.

Fairmont Hotel & Resorts Inc.

While all of CP's divisions suffered after the Sept. 11, 2001, terrorist attacks in the United States, Fairmont shares stumbled particularly hard. That forced the chain to go into sale mode, slashing prices of luxury hotel rooms by half. On its first day of official trading on the TSX on Oct. 3, 2001, Fairmont stock closed at $27.50. It recovered by the spring of 2002, only to slump again for as tourism faltered with the SARS outbreak in 2003 and an array of events that deflated vacation plans, including hurricanes and the war in Iraq. Fairmont shares rose 26 cents to $50.70 yesterday, up from $35.90 in 2001.

Fairmont gain: 41 per cent.

CP Ships Ltd.

The first ex-CP unit to vanish from the TSX, CP Ships is now owned by German travel titan TUI AG, which merged the historic Canadian container-shipping firm with its Hapag-Lloyd AG division. CP Ships ran into problems in 2004 as it overstated profit while trying to implement new accounting systems. Investors reacted by torpedoing CP Ships shares, and TUI took advantage of the weakness in stock price for its friendly takeover that was completed last month. CP Ships stock, which sold at $16.80 in 2001, rose last fall to match TUI's takeover bid of $25.

CP Ships gain: 49 per cent.

EnCana Corp.

The Calgary-based oil and gas producer has thrived with soaring energy prices. EnCana sharpened its focus on North America, particularly natural gas, and investors jumped aboard what they saw as a compelling growth story. EnCana grew from the merger of Alberta Energy Co. Ltd. and former CP unit PanCanadian Petroleum Ltd. Although Gwyn Morgan has relinquished the reins, EnCana is seen as being left in good hands with new chief executive officer Randy Eresman, who took over the top job on Jan. 1. EnCana shares rose $2.20 to $56.40 yesterday, up from $17.95 in 2001.

EnCana gain: 214 per cent.

Canadian Pacific Railway Ltd.

CPR shares finally began to rally in late 2004, after languishing amid concerns about its network constraints. With an expansion project in Western Canada recently completed, the railway is better positioned to handle booming Asian trade. Calgary-based CPR is still playing catch-up with Canadian National Railway Co., but investors are latching on to service improvements. CPR shares rose 30 cents to a record-high close of $55 yesterday, up from $29.75 in 2001.

CPR gain: 85 per cent.

Fording Canadian Coal Trust

Some investors were originally disappointed to find what they thought would be a lump of coal in their bag of CP goodies. Instead, Fording has turned out to be a stock market darling, riding a rally in coal prices. Calgary-based Fording has worked hard to forge long-term relationships with its foreign buyers, including Asian steel makers wanting metallurgical coal. Fording units rose 27 cents to $47.55 yesterday, up from $8.05 in 2001.

Fording gain: 490 per cent.

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