Canadian Pacific buying U.S. railroad DM&E

updated 7:38 a.m. ET Sept. 5, 2007

SIOUX FALLS, S.D. - Canadian Pacific Railway Ltd. will buy Dakota, Minnesota & Eastern Railroad Corp. and its subsidiaries for $1.48 billion cash, gaining access to the coal-rich Powder River Basin in Wyoming.

Canadian Pacific said late Tuesday it will also make contingent payments in the future of up to $1 billion, depending on progress on a long-planned expansion project by the Sioux Falls-based DM&E to carry coal from Wyoming's Powder River Basin.

CP said the deal will expand its current network by approximately 2,500 miles and increase its access to Midwest markets for agricultural products, coal and ethanol.

"DM&E is an excellent fit for Canadian Pacific, making this a strategic end-to-end addition to our network," Fred Green, president and chief executive of CP, said in a news release. "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 further upgrades of the regional railroad over the next several years.

"Canadian Pacific is our natural partner and we are very pleased with this deal. The logic of this acquisition is compelling," Kevin Schieffer, president and CEO of DM&E, said in a statement.

It wasn't immediately clear precisely how the sale will affect DM&E's $6 billion Powder River Basin project, in which it is rebuilding 600 miles of track across South Dakota and Minnesota and adding 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.

The project has aroused strong opposition in some communities along the route.

The sale 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.

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