The price may rise by as much as $1 billion, depending on construction costs for a project in Wyoming and future payments related to coal deliveries, Calgary-based Canadian Pacific said in a statement late yesterday.
Closely held DM&E had stirred interest as a takeover target since federal regulators rejected the U.S. carrier's application in February for a $2.33 billion loan to expand in Wyoming's Powder River Basin coal mining area. Adding DM&E would help Canadian Pacific expand its coal and agricultural businesses.
``While the price could appear high, it's become clear that the existing franchise has real value,'' independent rail analyst Anthony Hatch in New York said today in an interview. ``A year ago people thought this was just a coal project.''
Canadian Pacific shares fell C$3.32, or 4.5 percent, to C$70.15 at 10:11 a.m. in Toronto. Before today, the stock had risen 20 percent this year.
Canadian Pacific Chief Executive Officer Kevin Schieffer has said he plans to spend $6 billion to add as much as 262 miles of new track westward to allow the railway to haul 100 million tons of coal a year from the Powder River Basin.
Union Pacific Corp. and Burlington Northern Santa Fe Corp., the two biggest U.S. railroads, now move about 400 million tons of the region's coal annually.
`Going to Grow'
``We know Powder River is going to grow, but we don't yet know by how much,'' Hatch said.
Acquiring Sioux Falls, South Dakota-based DM&E would add 2,500 miles (4,020 kilometers) of track to Canadian Pacific's network and provide access to the lucrative U.S. market for hauling coal, as well as ethanol and agriculture products. Dakota, Minnesota & Eastern, which had freight revenue of $258 million in 2006, is the largest regional rail line in the U.S., Canadian Pacific said.
Dakota, Minnesota & Eastern has 1,000 employees, 7,200 rail cars and 150 locomotives operating in eight states. Canadian Pacific said it plans to spend $300 million upgrading Dakota, Minnesota & Eastern's network over the next several years.
Canadian Pacific expects to complete the purchase within two months. The acquisition, which is subject to approval from the U.S. Surface Transportation Board, will add to Canadian Pacific's earnings per share in 2008, the company said.
Canadian Pacific reiterated an earnings-per-share target for 2007 of C$4.30 to C$4.45 ($4.08 to $4.23), excluding foreign exchange and other unspecified items.
To fund the purchase, the Canadian railway said it suspended a share buyback begun in March and secured ``fully committed'' financing. Spokesman Mark Seland said he would be able to give details of the financing later today.
Via: Bloomberg
by Hugo Miller / Adam Satariano
