Genesee & Wyoming to Pay Canadian Pacific $210 Million for Rail Line

   By John Kell 
 

Genesee & Wyoming Inc. (GWR) has agreed to pay Canadian Pacific Railway Ltd. (CP) $210 million to acquire about 660 miles of rail operations mostly located in South Dakota and Minnesota.

The asset sale, expected to close in the middle of the year, will result in Canadian Pacific taking an estimated $240 million write down, which will be included in the company's upcoming fourth-quarter results.

The transaction isn't expected to have a material effect on Canadian Pacific's future results, while for Genesee & Wyoming, the deal is expected to generate $65 million in annual revenue and immediately add to per-share earnings in 2014. Genesee & Wyoming's results throughout 2013 were bolstered by the late 2012 acquisition of RailAmerica Inc., a move that combined the two largest short-line and regional-rail operators in North America.

The deal will give Genesee & Wyoming, which also operates freight railroads in Australia and the Netherlands, control of a rail line that shipped about 52,000 carloads annually of grain, bentonite clay, ethanol, fertilizer and other products.

The rail line, currently the west end of Canadian Pacific's Dakota, Minnesota and Eastern Line, will be known as the "Rapid City, Pierre & Eastern Railroad" under Genesee & Wyoming's control.

The track connects Tracy, Minn., and Rapid City, S.D., and also has connecting branch lines to other cities, including some tracks that extend to small portions of Nebraska and Wyoming.

Under terms of the deal, Genesee & Wyoming will also be acquiring inventory, equipment and vehicles. The company expects to hire about 180 employees to staff the new line, and anticipates most of those new hires will come from those currently working on the rail line.

Canadian Pacific's planned asset sale comes after three recent fiery accidents involving trains carrying crude oil out of North Dakota's Bakken Shale have puzzled regulators and industry officials. Observers are trying to figure out why the oil is exploding, because while crude is flammable, it is rarely implicated in explosions before being refined into products such as gasoline.

Earlier this week, a blast in Casselton, N.D., 25 miles west of Fargo, is just the latest explosion involving crude pumped out of the Bakken.

Write to John Kell at [e-mail]

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