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  Tuesday January 27th, 2015    

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CP acquisition of DM&E gives Winona less leverage than before (09/09/2007)
By John Edstrom

News this week of the sale of the Dakota, Minnesota, and Eastern Railroad to Canadian Pacific did not come as a great surprise. Earlier this year the Rochester Coalition, a group formed to oppose the DM&E's renovation and expansion to Wyoming's Powder River Basin in order to haul coal from there, succeeded in preventing the railroad from securing the federal loans needed to go ahead with its plans.

They accomplished this by arguing strenuously that the DM&E hadn't the financial wherewithal to repay the loans, that its business plan was a risky, even pie-in-the-sky one, and that, anyhow, the railroad had a bad safety record. Whatever, the loan was turned down. Now that Canadian Pacific has acquired the DM&E, that game has changed, and exposes the RC's arguments as being the fanciful elements in this equation.

CP has paid a whopping price for its acquisition, probably near $2.5 billion, and tangible proof of the DM&E's worth as well as the acuity of its vision of a lucrative market hauling Wyoming coal. The Rochester group will no longer be able to make these financial arguments with any credibility, and it doesn't appear that the CP will need or want U.S. government financing for the project anyhow. The necessary permits and regulatory approval are in place.

In a phone conversation with DM&E CEO Kevin Schieffer Friday afternoon, he expressed a quiet satisfaction with the numbers involved in the transaction, as opposed to the Rochester group's disparagement of the railroad's financial worth and condition. I asked him if the DM&E had been forced to sell because of the refusal of the federal loans to go through, and what the change in ownership would mean to Winona.

No, said Schieffer to the first part of the question. The sale to CP was the best of any number of viable options available to his railroad. He felt it was the best way for the project to go through, in the best interests of all involved. He also pointed at that there is more than one railroad, and Canadian Pacific has a sterling reputation for its dealings with the public and communities along its routes.

However, it is not necessarily the case that Winona will discover how nice or not it is to deal with the Canadian Pacific Railroad. The DM&E will continue to exist as a corporate entity, although it will be owned by CP. Schieffer expects that present management will largely stay in place for the near term, although that is not his call.

Therefore, and this is my, not his conclusion, those in Winona who are saying that because CP now owns the DM&E, (which terminates short of the Winona city limits), that CP must sit down and negotiate with city government over noise, dust, property values, etc., are likely to be in for a serious and deflating disappointment. Perhaps there will be a forthcoming admission that it would have been wiser to sit down with the DM&E and discuss things pleasantly when Winona's cooperation was perceived as very important and before the possibility of a rail yard and corporate offices being located in Winona went aglimmering.



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