CP to sell DM&E right-of-way to GWI

Canadian Pacific and Genesee & Wyoming, Inc., in a joint announcement Thursday, Jan. 2, 2014, said they had "executed an agreement pursuant to which CP will sell the west end of its Dakota, Minnesota & Eastern (DM&E) line to G&W for continued rail operations."

The two rail companies said the DM&E 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 Jct., Neb., and connecting branch lines, as well as trackage from Dakota Junction to Crawford, Neb., currently leased to the Nebraska Northwestern Railroad (NNW).

Under the terms of the definitive transaction agreements, the purchase price is approximately US$210 million, subject to certain adjustments including the purchase of inventory, equipment and vehicles.

Customers on the line ship approximately 52,000 carloads annually of grain, bentonite clay, ethanol, fertilizer, and other products. The new rail operation will have the ability to interchange with Canadian Pacific, Union Pacific, BNSF, and the NNW, the two railroads said.

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. Upon closing, the new railroad will be named the Rapid City, Pierre & Eastern Railroad.

Darien, Conn.-based Genesee & Wyoming expects to hire approximately 180 employees to staff the new company and anticipates these employees will come primarily from those currently working on the rail line.

CP said the agreement concludes the comprehensive strategic review process that Calgary, Alberta-based CP launched more than a year ago 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.

For CP, it is anticipated the sale will result in a net after-tax write down of approximately USD $240 million, subject to closing adjustments, which will be recorded in CP’s fourth quarter 2013 financial statements. 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 the transaction will generate annual revenues of approximately US$65 million and be immediately accretive to book and cash earnings per share in 2014.

“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,” said CP Chief Executive Officer E. Hunter Harrison. “South Dakota remains an important economic driver in the Midwest and CP looks forward to working with G&W.”

Said G&W CEO Jack Hellmann, “We are excited to be working with CP to expand G&W’s rail operations into South Dakota, as well as into Wyoming, Minnesota, and Nebraska. Given G&W’s commitment to safety, service and long-term infrastructure investment, we believe this transaction will significantly benefit our customers, the employees we plan to hire, the communities that we serve, and our connecting Class I rail partners.”

New York-based Evercore Group LLC served as exclusive financial advisor to CP on the transaction.