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CPR/DM&E merger a major transaction, STB says; board decision on deal not expected until late 2008

At an investors conference held Oct. 30 in Calgary, Alberta, Canadian Pacific Railway executives expressed hope that the Surface Transportation Board (STB) would consider the Class I's acquisition of the Dakota, Minnesota & Eastern Railroad Corp. (DM&E) a "minor" transaction so a decision on a control transfer could be reached within six months. But three days later, those hopes were dashed.

On Friday, the STB announced it reached a decision finding the acquisition a "significant" transaction. Under board rules governing transactions that size, the board will review CPR's and the DM&E's application for a control transfer within 10 months after they file an application.

The STB also ruled that CPR's and the DM&E's submission filed Oct. 5 is a "pre-filing" notification. The railroads can file an application after a mandatory two-month pre-filing notification period ends Dec. 5, the board said — meaning the earliest the STB could rule on the transaction is October 2008.

In the meantime, board members directed CPR and the DM&E to submit a procedural schedule, which will be available for public comment.

On Sept. 4, the railroads announced they reached an agreement under which CPR would acquire the 2,500-mile DM&E and its subsidiaries — including the Iowa, Chicago & Eastern Railroad Corp. — for $1.5 billion.

The transaction's terms include a $1.5 billion cash payment at closing and future contingent payments up to $1 billion; additional contingent payments totaling $350 million if construction on the DM&E's Powder River Basin project begins by Dec. 31, 2025; and additional contingent payments up to $700 million if specified coal volumes begin to move from the basin prior to Dec. 31, 2025.

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