Key snips<CP said it intends to spend an additional $300 million on regional railroad upgrades over the next several years.
<The company, based in Pittsburgh, plans to use these proceeds to pay down certain debt and help fuel long-term growth initiatives.
Canadian Pacific Acquiring DM&E
By DIRK LAMMERS 09.05.07, 11:27 AM ET
Canada's second-largest railway is buying the Dakota, Minnesota & Eastern Railroad Corp. in a deal that could extend its reach into Wyoming's coal-rich Powder River Basin.
Canadian Pacific Railway Ltd. will pay $1.48 billion cash for the DM&E and its subsidiaries. If Canadian Pacific follows through on the DM&E's long-planned expansion project to carry coal from the Powder River Basin, the deal could cost CP an additional $1 billion.
Company shares fell $2.32, or 3.3 percent, to $67.61 in midday trading Wednesday.
DM&E wants to rebuild 600 miles of track across South Dakota and Minnesota and add 260 miles of track around the southern end of the Black Hills to the Wyoming coal fields.
The rebuilt railroad would haul low-sulfur coal east to power plants, allowing CP to compete with Union Pacific and BNSF Railway, which combined to carry about 450 million tons of coal from the basin last year.
"Canadian Pacific is excited about the prospect for growth in the coal-rich Powder River Basin," Fred Green, president and chief executive of CP, said in a statement.
CP said the deal will expand its current network by approximately 2,500 miles and increase its access to Midwest markets for agricultural products and ethanol.
"The DM&E is an excellent fit for Canadian Pacific making this a strategic end-to-end addition to our network," Green said. "The DM&E is a high-quality, growing regional railroad that complements our existing franchise."
CP said it intends to spend an additional $300 million on regional railroad upgrades over the next several years.
Kevin Schieffer, president and CEO of the DM&E, said the buyout is the best way to get the Powder River Basin extension built.
DM&E has sought private financing for the Powder River Basin project since failing earlier this year to secure a $2.3 billion federal loan.
The project has aroused strong opposition in some communities along the route.
The deal is expected to close in the next 30 to 60 days and is subject to review and approval by the U.S. Surface Transportation Board.
L.B. Foster Co., which owns a minority stake in DM&E, said separately it will receive about $151.5 million pretax at closing, approximately $41.6 million upon start of construction of the PRB, and up to $84.2 million upon achieving milestones related to PRB coal tonnage thresholds.
The company, based in Pittsburgh, plans to use these proceeds to pay down certain debt and help fuel long-term growth initiatives.
Shares of L.B. Foster hit a new 52-week high of $40.48 in early trading, before easing some to $38.12, still a 7.5 percent jump in share price.
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