CP selling west end of DM&E line

CP selling west end of DM&E line

Railroad handles 52,000 carloads of grain, ethanol and other products annually.

CANADIAN Pacific (CP) and Genesee & Wyoming Inc. (G&W) recently announced that CP will sell the west end of its Dakota, Minnesota & Eastern (DM&E) line to G&W.

The new line, to be named the Rapid City, Pierre & Eastern Railroad, is currently responsible for 52,000 carloads annually of grain, bentonite clay, ethanol, fertilizer and other products and will have the ability to interchange with CP, Union Pacific, BNSF and the Nebraska Northwestern Railroad.

The west end encompasses approximately 660 miles of CP's current operations between Tracy, Minn., and Rapid City, S.D.; north of Rapid City to Colony, Wyo.; south of Rapid City to Dakota Junction, Neb., and connecting branch lines, as well as trackage from Dakota Junction to Crawford, Neb., that is currently leased to the Nebraska Northwestern.

The asset sale is expected to close by mid-2014, subject to approval of the U.S. Surface Transportation Board and satisfaction of other customary closing conditions.

G&W expects to hire approximately 180 employees to staff the new company and anticipates that these employees will come primarily from those currently working on the rail line.

The agreement with G&W concludes the comprehensive strategic review process that was launched by CP on Dec. 4, 2012. CP has operated the rail line in this area since it assumed operational control of the DM&E railroad in 2008 and will continue to own and operate approximately 1,900 miles of former DM&E track following the sale of the west end, the announcement said.

The purchase price is approximately $210 million, subject to certain adjustments, including the purchase of inventory, equipment and vehicles.

For CP, it is anticipated that the sale will result in a net after-tax write-down of approximately $240 million, subject to closing adjustments. The transaction is cash positive for CP, and the sale will not have a material effect on anticipated future earnings.

For G&W, it is expected that the transaction will generate annual revenues of approximately $65 million and be immediately accretive to book and cash earnings per share in 2014.

The sale is expected to benefit CP in its ongoing transformation to make its network stronger for its entire customer base. For G&W, the purchase is expected to add an important rail corridor with a strong customer base and continued access to CP's North American network.

"There is a strong long-term franchise here, and we are pleased to have found a partner in Genesee & Wyoming, which will maintain a high standard of customer service," CP chief executive officer E. Hunter Harrison said. "South Dakota remains an important economic driver in the Midwest, and CP looks forward to working with G&W."

Volume:86 Issue:02

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