Did CP Rail pay too much for the DM&E?

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CPF363
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Did CP Rail pay too much for the DM&E?

Post by CPF363 » Sat Dec 15, 2012 9:24 am

Canadian Pacific, in 2007, purchased the DM&E and the IC&E railroads for $1.5 Billion. The newly purchased system needed $300 Million in track improvements and other modernization upgrades. The ability for the DM&E to enter the Power River Basin was attractive to CP in 2007, but it would come at a big cost; new track construction to the fund the PRB extension would cost several more billion plus contingency payments of another $1.05 Billion to DM&E's former owners if they so chose to build the extension. So, did CP Rail simply pay too much for the DM&E? Was the PRB unreachable due to its overall costs, the economic market of coal and, would both UP and BN undercut coal rates to make such an entry to the PRB unprofitable for years to come for CP? Should CP have held on to what became the I&M Rail Link and later the IC&E in 1997?

Engineer Spike
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Re: Did CP Rail pay too much for the DM&E?

Post by Engineer Spike » Thu Dec 20, 2012 12:23 pm

I newer thought that entering the PRB was a good idea, even before the CP merger. I have heard that BN lost money when C&NW got in. They would undercut the other. I felt that UP and BNSF would screw DME silly. They would have bankrupted DME really fast.

CP was involved with a hostle takeover attempt. I have heard that the DME deal was a way to make itself unattractive to takeover.

JayBee
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Re: Did CP Rail pay too much for the DM&E?

Post by JayBee » Fri Dec 21, 2012 10:02 pm

CPF363 wrote:Canadian Pacific, in 2007, purchased the DM&E and the IC&E railroads for $1.5 Billion. The newly purchased system needed $300 Million in track improvements and other modernization upgrades. The ability for the DM&E to enter the Power River Basin was attractive to CP in 2007, but it would come at a big cost; new track construction to the fund the PRB extension would cost several more billion plus contingency payments of another $1.05 Billion to DM&E's former owners if they so chose to build the extension. So, did CP Rail simply pay too much for the DM&E? Was the PRB unreachable due to its overall costs, the economic market of coal and, would both UP and BN undercut coal rates to make such an entry to the PRB unprofitable for years to come for CP? Should CP have held on to what became the I&M Rail Link and later the IC&E in 1997?


I firmly believe that CP never intended to build into the PRB inspite of statements that they made to the press. If you read their STB filings at the time the were very guarded in saying that they would build the extension, saying the decision would be made after thoroughly studying the matter. I believe that CP made the PR show to influence Kevin Schieffer the CEO of the DM&E who viewed the PRB extension as his legacy in the Industry. When he left he was very bitter towards CP as he realized that CP had no intention of building the PRB extension, and this was several years before the formal announcement earlier this month. I also believe that the decision to sell and then later repurchase the former IC&E is a function of the future vision of CP's then current CEO, at the time of the sale it was William Stinson, and it was Fred Green who repurchased it. Certainly CP failed to do adequate Due Diligence as to the condition of the DM&E/IC&E trackage.

I also believe that the west end of the DM&E was doomed even if Fred Green remained as CEO of CP. As a smaller and independent company DM&E could get cheap or free money to improve tracks in South Dakota, as a part of the bigger CP, it was never going to meet the Company's standards for internal investment. The only difference that I see with Hunter Harrison at the helm is that the line dividing the eastern part of the DM&E from the west is at Tracy, MN rather than Blunt or Pierre, SD.

For CP the former IC&E is way more interesting than the DM&E.

CPF363
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Re: Did CP Rail pay too much for the DM&E?

Post by CPF363 » Mon Dec 24, 2012 9:00 am

Did Canadian National or Kansas City Southern consider an offer to purchase the DM&E-IC&E system before CP purchased it in 2007?

JayBee
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Re: Did CP Rail pay too much for the DM&E?

Post by JayBee » Wed Dec 26, 2012 11:59 am

CPF363 wrote:Did Canadian National or Kansas City Southern consider an offer to purchase the DM&E-IC&E system before CP purchased it in 2007?


It is unlikely that KCS would have made an offer. At that time KCS did not have enough cash and would have had to take on a lot of debt. I never heard of CN making an offer.

CN9634
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Re: Did CP Rail pay too much for the DM&E?

Post by CN9634 » Wed Dec 26, 2012 6:23 pm

CN put in a higher bid for the DME but did not make promise to build the PRB expansion that CP did. Remember, in business transactions, non-monetary clauses also weigh in on decisions. Well, no clue whether CP was honest when it said it was going to build the PRB expansion or not but we all know how that turned out...

Engineer Spike
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Re: Did CP Rail pay too much for the DM&E?

Post by Engineer Spike » Sun Aug 18, 2013 2:42 pm

"For CP the former IC&E is way more interesting than the DM&E."


I agree.
They get unit trains from DME, but they get a second route to Chicago and access to KC with ICE.

Jmusolf
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Re: Did CP Rail pay too much for the DM&E?

Post by Jmusolf » Sun Aug 18, 2013 3:12 pm

They get unit trains from DME, but they get a second route to Chicago and access to KC with ICE.


From everything I've heard CP will keep the Eastern side of DME from Winona, MN to Tracy, MN because it's profitable due to ethanol and grain traffic. Sounds like they want to get rid of everything west of Tracy.

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