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 john.kell@wsj.com
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