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  • CPR to buy Dakota, Minnesota & Eastern Railroad Corp

  • Discussion relating to the past and present operations of CPR. Official web site can be found here: CPR.CA. Includes Kansas City Southern.
Discussion relating to the past and present operations of CPR. Official web site can be found here: CPR.CA. Includes Kansas City Southern.

Moderators: Komachi, Ken V

 #442447  by Ken V
 
HoggerKen wrote:What I was getting at was, in the last ten years, the public has heard forecasts about the traffic this project will bring. No one can say for sure since it has changed so much.
That could be why the price CP will be paying depends on if/when the PRB line is built and how much coal is actually moved.

 #442454  by HoggerKen
 
Ken V wrote:
HoggerKen wrote:What I was getting at was, in the last ten years, the public has heard forecasts about the traffic this project will bring. No one can say for sure since it has changed so much.
That could be why the price CP will be paying depends on if/when the PRB line is built and how much coal is actually moved.
That is exactly it.

 #442494  by thebigham
 
Exciting news!

 #442793  by mkellerm
 
HoggerKen wrote: All depends upon where they will get the $6 billion in funding. It was not a slam dunk for DM&E, who announced the PRB project almost 10 years ago, and they still dont have the cash in hand. CP will be getting a lot of debt along with this line, DME just got another loan from FRA for $40 million in January. Without looking in my notes, loans are outstanding for $233M, $110M, and $90M from over the years. Part of that money was to pay back whoever fronted DME the cash to propose and spend many many months before the STB trying to get this project off the ground, and pay back the loans at extreme rates to purchase the assets of the IMRL from Washington Group.
On the conference call, the CP CFO said that the headline number for the purchase ($1.48B) included paying off the outstanding debt associated with DME and ICE. There is a link to the recording from this page:

http://www8.cpr.ca/cms/English/Investor ... 042007.htm

In some ways, I think that this deal is more about financial self-defense for CP than it is about access to PRB coal or challenging the other Class I's. The proposed Brookfield buyout would have levered up the company and potentially split the operations from the infrastructure/real estate component. The DME purchase basically kills this possibility. I think that the leadership at CP decided that they would rather borrow $6B and invest it in expanding the franchise than have Brookfield borrow $6B and asset-strip the company.
 #442796  by Komachi
 
I live in the thick of the stickiest battle regarding the DME PRB project.

Don't get me started on Rochester (MN)... (I live within "spitting distance" of Rochester.)

And I'm going to second HoggerKen, the anti-DME crowd is anti-coal trains, anti-increased traffic, etc. I don't see it changing for CP. Unless they're willing to build the bypass or tunnel/overpass system the citizenry of Rochester are demanding.

As long as the Mayo Clinic conitnues to oppose the project the city of Rochester will too (although, Rochester seems to be a tad narcissistic when it comes to various issues, Rochester first and damn all others). I don't know about Mankato, they seem to have calmed down a little (at least, I haven't heard much from Mankato's contingency, the local media is all out of Rochester, so...).

 #442879  by Leo_Ames
 
They're just about exhausted all their legal options to oppose this, I highly doubt DM&E or CP is very worried about them.

 #443421  by Tadman
 
It's worth noting the CP is better-equipped to wage battle against the local towns on the PRB project compared to DME.
 #443806  by sodaknomad
 
Komachi wrote:I live in the thick of the stickiest battle regarding the DME PRB project.

Don't get me started on Rochester (MN)... (I live within "spitting distance" of Rochester.)

And I'm going to second HoggerKen, the anti-DME crowd is anti-coal trains, anti-increased traffic, etc. I don't see it changing for CP. Unless they're willing to build the bypass or tunnel/overpass system the citizenry of Rochester are demanding.
I have to agree with that first sentence. But they are also anti-South Dakota. The same gang that are whining about the PRB are also whining about two of South Dakota's other three billion plus dollar economic development projects, namely Big Stone II and the Gorilla project.

As for that third sentence...EI study after EI study show all possible bypasses of Rochester leading to either sloughs or sinkholes. The original Dakota Central laid the line, they certainly got lucky with it.

As for a bridge/tunnel possibility, it's not feasable. They want a new bridge/bypass in Pierre, but that's not feasable right now.
As long as the Mayo Clinic conitnues to oppose the project the city of Rochester will too (although, Rochester seems to be a tad narcissistic when it comes to various issues, Rochester first and damn all others).
That's not news to me. Rochester is the only town not to sign onto the project. The always point to places like Balaton with their 80+ year old rusted out rail and many derailments and cry that the project shouldn't be built, but they never look at the shiny three year old rail between Huron and Pierre with no derailments as a reason that it should ne built.
I don't know about Mankato, they seem to have calmed down a little (at least, I haven't heard much from Mankato's contingency, the local media is all out of Rochester, so...).
How much play is this getting? Bill Janklow is still traipsing all over West River like some 1880's ambulance chaser crying because the DM&E is forced to playa little hardball. What a hypocrit.
 #443855  by uhaul
 
What I do not understand why the owner(s) of the DME & ICE would want to give up their railroad.
They have a regional with a decent paint scheme, a bit of personality, and a smaller work force. I do not know if it is a everyone knows everybody environment, but DME & ICE are probably closer to it than CN is.

9/11/01
9/11/07
 #443883  by sodaknomad
 
uhaul wrote:What I do not understand why the owner(s) of the DME & ICE would want to give up their railroad.
They have a regional with a decent paint scheme, a bit of personality, and a smaller work force. I do not know if it is a everyone knows everybody environment, but DME & ICE are probably closer to it than CN is.

9/11/01
9/11/07
It's because the DM&E is still an empire of rust. For the last 21 years, the trains have been either having to travel at 5-10mph or derailing.

So ten years ago the railroad proposed solving the problems caused by aged rail. They proposed replacing it all. This proposal at the time would have cost some $700-million [$1.1-billion today]. They didn't have the money for this endevor, so they needed a quality source of revenue. That source was found in the Powder River Basin. For $800 million more [$1.4 billion today], they can go into the coal fields and haul away enough to pay for the whole wad plus redo all the other lines they own.

Now comes the controversy. Rochester seems they would rather have derailed ethanol cars in their city than coal. They're the ones who have been fighting this project since day one. I do suspect they brought in Burlington to help them in the fight. At first DM&E fought alone, and at every turn, won. It seems to me that CP has been silently cheering.

Back in March, when the loan app was denied, Kevin Schieffer [CEO of DM&E] publicly accused BN of having a hand in the denial, saying they and Rochester are afraid of a little competition [and in Rochester's case, Capitalism (my own accusation against Rochester)]. So the DM&E had to find capital to fund the project, and that capital was CP.

The deal with CP will give the DM&E a chance to build the PRB project and access to CP's rail for delivery of coal to the eastern and southern US and gives CP access to the Powder River Basin, South Dakota, Iowa and Missouri.

The deal also gives the DM&E a heavier hand in dealing with both Rochester and BN.

 #444980  by Komachi
 
I think we can keep the discussion of the whole CP - DM&E/IC&E takeover in one thread, don't you, kids?

The following commentary was originally made in the "CP DM&E/IC&E Takeover Discussion Questions" thread (now locked)...


cclune kicked off the thread by inquiring...
I am very excited about the CP takeover. That being said, I have a few questions about the agreement and its conditions. Hopefully all you CP enthusiasts and railfans can answer them for me. So lets start. When will CP start running their trains on DM&E/IC&E trackage (when will their locomotives appear on their newly acquired lines)?. Will the CP have to add new signals, redo track, add sidings, and possibly add new trackage for their trains to run efficiently to their standards? What will CP do with DM&E/IC&E locomotives? Will they paint them into the current CP scheme (hopefully they do)? Does this acquisition mean that CP may have to stop retiring a lot of their SD40-2's and maybe paint up a few more SD40-2's and SD60's into the current scheme as well? Lastly, I am from Illinois and I love the CP Bensenville yard area. This area is the last area all CP freights go westward until they are directed north via the UP milwaukee sub until they are directed back on to home rails at techny/shermer (CP C&M north sub). Does this take over mean that we will see CP freights continue westward over the IC&E trackage(ex I&MRL, ex Soo, ex Milw trackage)?
The venerable uhaul then quipped...
All I feel comfortable saying is the tidbit about the motive power. Canadien Pacific retired those SD40-2s for a reason so I doubt they will be repainted. I also see no reason for CP's SD60s to be repainted either.
Just a note that these comments have been copied and pasted as-is from the other thread with no editing from yours truely.

Please keep the discussion of the CP/DM&E/IC&E merger here... any new threads will be locked and deleted... judiciously and without mercy.

 #445467  by sodaknomad
 
Komachi wrote:Please keep the discussion of the CP/DM&E/IC&E merger here... any new threads will be locked and deleted... judiciously and without mercy.
Can you merge threads? I am a moderator on another board that has the exact same format as this one, and I have that power there.

 #445806  by D.Carleton
 
One more wrinkle: as has been noted in another thread, CP was the target of proposed takeover earlier this year until the loan market hiccupped. DM&E/ICE is a huge fixer-upper with a huge potential, but it's still a fixer-upper nonetheless. Taking on this sort of risk would make CP a less appealing target for a hostile takeover.

 #454340  by james_h
 
D.Carleton wrote:One more wrinkle: as has been noted in another thread, CP was the target of proposed takeover earlier this year until the loan market hiccupped. DM&E/ICE is a huge fixer-upper with a huge potential, but it's still a fixer-upper nonetheless. Taking on this sort of risk would make CP a less appealing target for a hostile takeover.
That was also pointed out in one of the earlier posts in this topic as well. While I tend to agree that CP is a lot less appealing to Brookfield (or other equity company) now, I think this is one of the added bonuses that come with the deal. I say this because the DM&E/IC&E merger has been in the pipes for a while. A merger like this doesn't just happen. So CP was probably negotiating before the buyout story broke and this helps make that less and less of a possibility.
Now here's my two cents on why CP went ahead with the deal, besides reducing a takeover.
The primary reason is coal and lots of it. CP likes moving coal and is good at it. CP has lots of expirience moving coal in B.C. and the PRB would give them access to lots more coal. Plus the coal in the PRB is easier to move as the area doesn't come with the mountains that B.C. comes with.
Secondly, Ethanol. There is an explosion going on in the midwest and ethanol plants are springing up like crazy. This deal will also give CP access to a lot of these new ethanol plants and the revenue that comes with it. I recently read that estimates for ethanol will top 1 billion gallons a year by the end of 2008. So that's also a fairly large market.
Next, Kansas City. This merger gives CP a connection with Kansas City which is something they haven't had before. There is a trade boom going on with Canada and Mexico (as well as Mexico and the U.S.), and till now UP has been CP's main connection for getting goods to and from Mexico. Now CP can interchange with KCS as well, who will then run directly into Mexico.
Finally CP hasn't really grown for quite some time, while a lot of the other Railroads have. CP's last merger was with the D&H, yet in the last 10-20 yrs the other RR's have really grown. UP/SP, CN/BCR/IC, BN/ATSF and so on. So I think CP has been looking to grow for a while to try to keep up, and with the exception of the BCR deal (which was stupidly given to CN) CP hasn't really found an opportunity to merge with another RR and have that merger fit the CP system.
Anyway, I think this deal has a lot of advantages to CP and while it may be expensive today, it will lead to a lot of opportunity down the road.

 #454355  by SooLineRob
 
james_h wrote: This merger gives CP a connection with Kansas City which is something they haven't had before. There is a trade boom going on with Canada and Mexico (as well as Mexico and the U.S.), and till now UP has been CP's main connection for getting goods to and from Mexico. Now CP can interchange with KCS as well, who will then run directly into Mexico.
Not accurate. CP Rail had the entire IC&E property until 1997, including access to KC and the KCS. Knoche Yard in KC was a joint CP-KCS facility. CP Rail sold all those lines (collectively known as the "Kansas City-Corn Lines") to the Washington Group, Montana Rail Link, in 1997. MRL operated the KCCL lines as the I&M Rail link, then sold it off to the DM&E, which in turn operated the KCCL as the IC&E. CP has purchased a "twice removed" property they already owned once before.