Canadian Pacific (CP) and Genesee & Wyoming Inc. (G&W) announced that they have 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 west end encompasses approximately 660 miles of CP’s current operations between Tracy, MN and Rapid City, SD; north of Rapid City to Colony, WY; south of Rapid City to Dakota Jct., NE; and connecting branch lines, as well as trackage from Dakota Junction to Crawford, NE, currently leased to the Nebraska Northwestern Railroad (NNW).
G&W owns and operates short line and regional freight railroads in the United States, Australia, Canada, the Netherlands and Belgium. Operations currently include 111 railroads organized in 11 regions, with nearly 15,000 miles of owned and leased track, 4,600 employees and over 2,000 customers.
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 CP, Union Pacific, BNSF and the NNW.
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.
The agreement with G&W concludes the comprehensive strategic review process that was launched by CP on December 4, 2012. Canadian Pacific 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.
Under the terms of the definitive transaction agreements, the purchase price is approximately USD $215 million, subject to certain adjustments including the purchase of inventory, equipment and vehicles. For CP, it is anticipated the sale will result in a net after-tax write down of approximately USD $257 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 $65 million and be immediately accretive to book and cash earnings per share in 2014.
The sale is expected to benefit CP in its ongoing transformation to make its network stronger for its entire customer base. For G&W, the purchase is expected to add an important rail corridor with a strong customer base and continued access to CP’s North American network. “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.”
Jack Hellmann, G&W’s Chief Executive Officer commented, “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.”