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Rail News: Rail Industry Trends

DM&E again hits the STB trail with proposed I&M Rail Link purchase


Three weeks after receiving Surface Transportation Board's approval for its $1.4 billion Power River Basin project — ending a four-year wait — 1,105-mile Dakota, Minnesota & Eastern Railroad Corp. (DM&E) plans soon to be knocking on STB's door again for approval of another kind.
DM&E Feb. 21 announced it reached an asset-purchase agreement with I&M Rail Link (IMRL), under which newly established DM&E railroad Iowa, Chicago & Eastern Railroad Corp. (IC&E) would acquire all of 1,385-mile IMRL's rail lines and rolling stock, and substantially all other assets.
DM&E and IC&E would be commonly managed by wholly owned DM&E subsidiary Cedar American Rail Holdings Inc., which would hold all IC&E stock.
The cash transaction — of which terms weren't disclosed — is subject to financing arrangements, which DM&E plans to immediately begin pursuing, and STB approval.
"I really miss the [PRB] filings, so we're going to file a new case with STB next week," joked DM&E President and Chief Executive Officer Kevin Schieffer at a Feb. 21 press conference.
The deal, which required 17 months of "the most difficult negotiations ever in my life," said Schieffer, would give DM&E access to critical gateways, such as Chicago, Kansas City and Minneapolis, and bolster the eastern end of its system.
"We become a compelling transportation system, from a feeder line to an origin-to-destination transportation network," said Schieffer. "This is an earthquake for the rail industry."
That earthquake could produce shudders for DM&E's PRB project, attracting investors to what would be a much larger regional railroad and providing DM&E more coal shippers along IMRL's lines. But Schieffer said the IMRL deal is independent of DM&E's PRB project.
"We're now a stand-alone railroad, with access to every major railroad in the country," he said.
The deal was structured as an asset-purchase transaction largely due to employee concerns, such as seniority and possible relocation. IMRL employs 700; DM&E, 350.
"The final result will have very little impact on employees," said Schieffer. "The deal also won't make employees feel like one railroad is taking over the other."
Once IC&E fully integrates IMRL's operations, DM&E might hire IMRL workers to help run the new railroad. DM&E also plans to develop a wage and benefits package that's as good or better than IMRL's, said Schieffer.
DM&E has no plans at this time to move IMRL's headquarters from Missoula, Mont. But coordinating the administrative and executive functions of both railroads might lead to personnel changes.
Officials at IMRL, which is two-thirds owned by The Washington Cos. and one-third by Canadian Pacific Railway, and the regional's shareholders now must decide how to proceed in the wake of another company running its operations and taking over its economic interests.
Meanwhile, DM&E — which, for now, isn't contemplating a purchase of Washington Cos. other regional, Montana Rail Link — plans to concentrate on the two large entrees on its plate, working to secure financing for both and regulatory approval for the IMRL deal, which Schieffer believes will close mid-year.
"In the immediate future, we plan to work on the successful integration of the companies," he said. "This is a happy day for DM&E — this puts us at the top end of a Class II and very close to a Class I."
Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 2/21/2002