Subject to the Department of Transportation Surface Transportation Board's approval, the Canadian Pacific Railway (CP) has reached an agreement to purchase the largest regional railroad in the United States for $1.48 billion.

The Dakota, Minnesota & Eastern Railroad Corp.'s (DM&E) authority to build into the Wyoming Powder River Basin, a major source of low-sulfur thermal coal, was one of the major attributes that attracted CP to the deal. Contingent payments worth an additional $1 billion will be paid to DM&E if CP chooses to expand into the Powder River Basin.

CP was also interested in DM&E's ethanol franchise since the Canadian firm had been looking to penetrate that market for quite some time, according to company President Fred Green.



This purchase will give CP an additional 2,500 miles of track and an immediate $275 million in revenue, according to the company. "DM&E is an excellent property … with a strong, diversified product base and a rapidly expanding ethanol business," Green said.

CP said it would spend another $300 million to upgrade the existing assets of DM&E. Along with being the longest regional railroad in the United States, DM&E "connects and interchanges traffic with all seven Class I railroads" at major junctions like Minneapolis and Chicago, CP said. The Surface Transportation Board review process is expected to take less than a year, and at press time, CP hoped the deal would close by the end of October.

DM&E had previously announced it was seeking partners to successfully complete its expansion into the Powder River Basin. "Many options from outright sale of assets to more limited partnering arrangements were received and studied, but after considering all the proposals, DM&E has determined that this sale and merger transaction with CP, as negotiated, is the best approach to continue the dramatic growth of the existing railroad business," DM&E said.