Canadian Pacific to Sell Line Faulted by Ackman for $210 Million

Jan 03, 2014 12:01 am ET

Jan. 3 (Bloomberg) -- Canadian Pacific Railway Ltd. agreed to sell the western part of its Dakota, Minnesota & Eastern line to Genesee & Wyoming Inc. for $210 million, undoing a purchase completed in 2008 to expand its coal business.

The segment comprises about 660 miles (1,062 kilometers) of track mostly in the U.S. Midwest, the companies said yesterday in a statement. The sale is scheduled to close by the middle of this year, they said.

Canadian Pacific’s decision to shed part of the line comes after a strategic review begun 13 months ago. William Ackman, whose Pershing Square Capital Management is the Calgary-based railroad’s biggest shareholder, said it was “a blunder” to purchase the DM&E as he successfully fought to oust former Chief Executive Officer Fred Green and replace him with current CEO Hunter Harrison.

Genesee & Wyoming, the Greenwich, Connecticut-based operator of 111 short-line railroads, said adding the track will boost annual sales by $65 million, according to the statement.

The purchase is Genesee & Wyoming’s first since August 2012, when it acquired RailAmerica Inc. from Fortress Investment Group LLC for $1.39 billion, combining North America’s two largest regional rail operators.

Chief Financial Officer Timothy Gallagher said in a Nov. 12 presentation to analysts and investors that Genesee & Wyoming was examining deals in North America, Europe and Australia and had “more than a handful of things we’re working on.”

Canadian Pacific will take a $240 million charge against earnings in the fourth quarter of 2013 related to the sale, according to the statement.

Green called the DM&E a “strong-growing regional railroad with solid growth potential” after Canadian Pacific announced the $1.48 billion acquisition of the entire line in September 2007. While it had targeted the railroad to help expand coal shipments, volumes of the fossil fuel have plunged amid a shift by utilities to cheaper natural gas.

--Editors: Molly Schuetz, Stephen West