Canadian Pacific Railway Secure in DM&E Buy
By Jeff Kiger, Post-Bulletin, Rochester, Minn.
Sep. 5–Canadian Pacific Railway Ltd. appears to betting big on the Powder River Basin expansion with its purchase of the Dakota, Minnesota and Eastern Railroad.
“It seems to be on the surface that is a pretty good vote of confidence for the expansion project,” said transportation analyst Tony Hatch. Hatch has been a senior transportation analyst on Wall Street for more than twenty years and he has closely followed the DM&E saga.
Beyond the initial price of $1.48 billion, CP says it will pay an additional $350 million if construction starts on the Powder River Basin expansion project before Dec. 31, 2025. Additional payments of up to $700 million are also contingent on specific amounts of coal from the Powder River Basin being hauled before that date.
The auction of DM&E has been very active this summer with many media reports tracking its ups and downs.
Earlier in the summer, several financial companies were in the running to buy DM&E, but the softening of the national markets changed and made a purchase by another railroad more likely, he said.
“This is a major deal when very few deals are being done,” Hatch says. “It says something about the value of this project.”
He pointed out than even if the Powder River expansion project does not go forward, “DM&E is still a very valuable property.”
This acquisition adds to the list of deals or attempted deals in the railroad industry this summer, including a takeover attempt of Canadian Pacific.
Brookfield Asset Management Inc. approached CP about a takeover in July. Though the takeover was rebuffed, it did drive a run-up in the railway’s shares topping out at $90.15. Its shares were trading at $66.20 this morning, down from the $69.93 it closed at Tuesday.
CP says the DM&E purchase will add to 2008 earnings.
In other rail action this summer, celebrated investor Warren Buffett acquired more than 10 percent of Burlington Northern Santa Fe. Burlington is CP’s competitor and it is the top coal hauler out of the Power River Basin.
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