UPDATE 3-Canadian Pacific names Hunter Harrison CEO

* Harrison was ex-CEO of rival Canadian National Railway

* CN vows action if he uses confidential CN information

* Harrison says he wants to learn priorities of stakeholders

By Susan Taylor

TORONTO, June 29 (Reuters) - Canadian Pacific Railway Ltd named railroad veteran Hunter Harrison as chief executive on Friday, falling in line with the hand-picked choice of activist investor William Ackman, who touted Harrison as savior of the industry-laggard company.

Harrison, who earned legendary status by transforming Canadian National Railway and Illinois Central Railroad into two of the industry's most profitable and admired companies, had been widely expected to replace former CEO Fred Green.

Green and CP's chairman resigned just hours ahead of the company's annual meeting in May, facing a humbling proxy battle defeat at the hands of Ackman and his Pershing Square Capital Management hedge fund.

Pershing, which holds a 14.1 percent stake in CP, built its turnaround strategy for the company around Harrison, who has nearly 50 years of rail experience.

Ackman, who thrashed CP for the stubbornness of its board of directors and "mismanagement" under Green, said Harrison was the cure for dismal efficiency and shareholder returns at the country's second-biggest railroad.

CP's operating ratio, a key industry barometer that measures efficiency, has lagged that at CN Rail, the country's biggest railroad, since the mid 1990s.

In the first quarter, CP's operating ratio was 80.1 percent, while CN's was 66.2 percent. The lower the number, the better the railroad's performance.

Shareholder hopes are high that Harrison, who months ago spent C$5 million of his own money on CP shares as a show of faith, can put the railway's operations back on track.

CP shares rose nearly 1.2 percent Friday morning after the news of Harrison's appointment, building on gains of about 12 percent over the past six months.

Harrison, who grew up in Memphis, Tennessee, started as a carman-oiler at the St. Louis-San Francisco Railway in 1963. He rose through the ranks and moved to Burlington Northern and Illinois Central Railroad.

He was president of Illinois Central when Canadian National acquired it in 1998, becoming chief operating officer and later CEO of Canadian National. He retired from CN in 2009.

CN has launched legal action against Harrison, asking an Illinois court to rule on whether it had the legal right to stop pension and other payments to Harrison worth nearly $40 million. It also seeks to enforce covenants that Harrison not solicit CN personnel for a set time period or disclose confidential CN information.

"CN intends to monitor events, and, if it appears that Mr. Harrison is using confidential CN information, CN might seek injunctive relief at that time," the company said in a statement Friday.

CP has a "significant market opportunity", Harrison said on Friday, adding that he wants to quickly learn the priorities of customers, shareholders, employees and communities served by the railroad.

He promised in February that he would "declare war on bureaucracy" within his first 100 days on the job, but would not "slash and burn" to cut costs.

Built in the 1880s to link Canada from east to west, CP moved close to 2.6 million carloads of freight last year, employs more than 15,000 people and has a market capitalization of about C$12.5 billion.

CP's boardroom beauty contest, a rarity in conservative corporate Canada, set a new course for the storied company.

Shareholders voted Ackman's entire slate of seven directors onto CP's board on May 17 as Green, chairman John Cleghorn and four other directors opted not to stand for re-election.

Stephen Tobias, a rail industry veteran who was on Ackman's director slate, was named interim CEO after the meeting. Since then, two other Canadian Pacific board members, both directors under Green, have quit.

The company elected Paul Haggis chairman earlier this month.