Canadian Pacific announces agreement to acquire DM&E Railroad



    CALGARY, Sept. 4 /CNW/ - Canadian Pacific Railway Limited (TSX/NYSE:   CP)
announced today that it has reached an agreement to acquire the Dakota,
Minnesota & Eastern Railroad Corporation and its subsidiaries (DM&E) for
US$1.48 billion. With this value-enhancing transaction, CP expands its current
network by approximately 2,500 miles and increases its access to U.S. Midwest
markets including agri-products, coal and ethanol. The deal consists of a
US$1.48 billion cash payment at closing and future contingent payments of up
to approximately US$1.0 billion. Future contingent payments of US$350 million
will become due if construction starts on the Powder River Basin expansion
project prior to December 31, 2025. Further future contingent payments of up
to approximately US$700 million will become due upon the movement of specified
volumes of coal from the Powder River Basin over the Powder River Basin
extension prior to December 31, 2025.
    "The DM&E is an excellent fit for Canadian Pacific making this a
strategic end-to-end addition to our network," said Fred Green, President and
Chief Executive Officer of CP. "The DM&E is a high-quality, growing regional
railroad that complements our existing franchise. This investment presents the
opportunity for future growth through further expansion of our network and is
accretive to our EPS in 2008."
    "There are natural synergies between our two railroads which make this a
very attractive transaction. We have a solid transition plan that I am
confident we will implement successfully. CP is the safest railroad in North
America and we will work together to build on the significant improvements the
DM&E has made in operating efficiency and safety over the past several years.
This includes CP's intention to spend an additional US$300 million of capital
for further upgrading of the regional railroad over the next several years."
    "Canadian Pacific is our natural partner and we are very pleased with
this deal. The logic of this acquisition is compelling," said Kevin Schieffer,
President and CEO of the DM&E. "I'm proud of the DM&E and the organization
we've built; our operating ratio is one of the best in the industry. The
combination of our two companies and the resulting efficiencies will be very
positive for our customers. CP is not only a natural operating fit; we also
share a commitment to our employees, our customers and the communities we
serve as well as a vision for the potential of the Powder River Basin."
    The addition of the DM&E extends the reach of CP's network. It increases
the rail network, and adds new customers and expands the service available to
customers of both companies. The DM&E is the largest regional railroad in the
U.S. and the only Class II railroad that connects and interchanges traffic
with all seven Class I railroads, connecting with Canadian Pacific at
Minneapolis, Winona, MN and Chicago. It had 2006 freight revenues of
approximately US$258 million, which is expected to grow to approximately
US$280 million, or by nine per cent in 2007. The DM&E is headquartered in
Sioux Falls, SD and has approximately 1,000 employees, 2,500 miles of track
and rolling stock that includes 7,200 rail cars and 150 locomotives. It serves
eight states; Illinois, Iowa, Minnesota, Missouri, Nebraska, South Dakota,
Wisconsin and Wyoming with access to Chicago, Minneapolis/St. Paul, Kansas
City and key ports.
    The DM&E has been pursuing a strategy to become the third rail carrier in
Wyoming's Powder River Basin. The Powder River Basin is North America's
largest and most rapidly growing source of low-cost, low-sulphur coal as well
as the largest single rail market in terms of volume.
    "Canadian Pacific is excited about the prospect for growth in the
coal-rich Powder River Basin," Mr. Green said. The DM&E's favorable geographic
position provides a unique ability to create an efficient and competitive
additional link to midwestern and eastern utilities. We have created a
disciplined plan aimed at facilitating a decision on the expansion and
ensuring the investment provides returns that exceed our thresholds. Our
purchase agreement has been structured to share further upside as the benefits
of the expansion are realized. We are confident this will provide maximum
long-term value for our shareholders."
    "With our strong balance sheet, this investment represents the best use
of our free cash," said Mike Lambert, Chief Financial Officer of CP "We have
secured fully committed acquisition financing as part of this transaction.
Permanent financing for this acquisition and future financing for a potential
PRB expansion will be structured to preserve appropriate debt and coverage
ratios for our investment grade rating."
    In conjunction with this purchase, Canadian Pacific has suspended
activity under its current share repurchase program that commenced in March of
2007. CP has purchased 3,209,790 shares in 2007.
    With the successful completion of this transaction, which is expected to
close in the next 30 to 60 days, Canadian Pacific confirms that its outlook in
2007 for diluted earnings per share, excluding foreign exchange gains and
losses on long-term debt and other specified items, remains unchanged in the
range of CDN$4.30 to CDN$4.45.
    The CP/DM&E transaction is subject to review and approval by the U.S.
Surface Transportation Board (STB), during which time the shares of DM&E will
be placed into an independent voting trust. The review process is expected to
take less than a year. CP expects that the operation will become part of CP's
U.S. network upon completion of the review. The voting trust is required by US
law so that CP does not exercise control over DM&E prior to approval of the
transaction by the STB.

    Conference Call

    Fred Green, President and CEO, Mike Lambert, Executive Vice President and
CFO and Kathryn McQuade, Executive Vice President and COO, will be available
to discuss this announcement with investment analysts and the media in a
conference call beginning at 11 a.m. Eastern time (9 a.m. Mountain time) on
September 5. Dial-in numbers: 416-640-1907 or 800-732-9303. Callers should
dial in 10 minutes prior to the call. A replay of the conference call will be
available by phone through September 30, 2007, at 416-640-1917 or
877-289-8525, pass code 21237495 followed by the pound key.
    This call will also be Webcast: live via CP's website at www.cpr.ca. To
access the Webcast, click on Investors and follow the links. The Webcast will
be archived through August 31, 2008.
    For further information on this announcement and current updates, see
www.cpr.ca.

    Note on forward-looking information

    This news release contains certain forward-looking statements relating
but not limited to the proposed acquisition transaction and our anticipated
financial performance. Undue reliance should not be placed on forward-looking
information as actual results may differ materially.
    By its nature, Canadian Pacific's forward-looking information involves
numerous assumptions, inherent risks and uncertainties, including but not
limited to the following factors: changes in business strategies; general
North American and global economic and business conditions; risks in
agricultural production such as weather conditions and insect populations; the
availability and price of energy commodities; the effects of competition and
pricing pressures; industry capacity; shifts in market demand; changes in laws
and regulations; including regulation of rates; changes in taxes and tax
rates; potential increases in maintenance and operating costs; uncertainties
of litigation; labour disputes; risks and liabilities arising from
derailments; timing of completion of capital and maintenance projects;
currency and interest rate fluctuations; effects of changes in market
conditions on the financial position of pension plans; and various events that
could disrupt operations, including severe weather conditions, security
threats and governmental response to them, and technological changes.
    There are factors that could cause actual results to differ from those
described in the forward-looking statements contained in this news release.
These more specific factors are identified and discussed in the Outlook
section and elsewhere in this news release with the particular forward-looking
statement in question.
    Canadian Pacific undertakes no obligation to update publicly or otherwise
revise any forward-looking information, whether as a result of new
information, future events or otherwise except as required by law.

    About Canadian Pacific

    Canadian Pacific, through the ingenuity of its employees located across
Canada and in the United States, remains committed to being the safest, most
fluid railway in North America. Our people are the key to delivering
innovative transportation solutions to our customers and to ensuring the safe
operation of our trains through the more than 900 communities where we
operate. Our combined ingenuity makes CP a better place to work, rail a better
way to ship, and North America a better place to live. Come and visit us at
www.cpr.ca to see how we can put our ingenuity to work for you. Canadian
Pacific is proud to be the official rail freight services provider for the
Vancouver 2010 Olympic and Paralympic Winter Games.



    
    DM&E FACT SHEET
    September 2007
    -------------------------------------------------------------------------
    Key Financial Data
    -------------------------------------------------------------------------
                                           2007T          2006        Change
                                         ------------------------------------

    Total Revenues (USD millions)            290           265            9%
    Freight Revenues (USD millions)          280           258            9%
    Carloads (thousands)                     275           260            6%
    Operating Ratio (%)                     67.6          70.2       260 bps
    Locomotives                              150           150
    Rail Cars                              7,400         7,200


    -------------------------------------------------------------------------
                                 Highlights
    -------------------------------------------------------------------------

    -  Largest Class II railroad in the US
    -  Only Class II railroad with interchanges to all seven Class I
       railroads
    -  2,500 miles of track serving 8 states; Illinois, Iowa, Minnesota,
       Missouri, Nebraska, South Dakota, Wisconsin and Wyoming
    -  Access to Twin Cities, Kansas City, Chicago and key water ports
    -  Approximately 1,000 employees with 375 unionized
    -  Improved train accident and personal injury performance


    -------------------------------------------------------------
    2006 Revenue Data
    -------------------------------------------------------------
                                           Freight
                                          Revenues      Carloads
                                         ------------------------
    Grain                                    36%           38%
    Coal                                      6%           15%
    Fertilizers                               3%            3%
    Forest                                    6%            5%
    Industrial                               48%           38%
    Automotive                                1%            1%


    ---------------------------------------------
              2006 Operating Expenses
    ---------------------------------------------
    Operations                               41%
    Fuel                                     21%
    Equipment Rents                          11%
    Dep'n & Amort                            10%
    G&A                                      11%
    Other                                     6%


    ---------------------------------------------
                  Operating Ratio
    ---------------------------------------------
    2003                                     78%
    2004                                     76%
    2005                                     75%
    2006                                     70%
    2007T                                    68%


    -------------------------------------------------------------------------
                             Capital Expenditures
    -------------------------------------------------------------------------
                                 USD millions
                                            Core         Growth        Total
                                         ------------------------------------
    2004                                      47            24            71
    2005                                      46            24            70
    2006                                      53            32            85
    2007T                                     48            54           102


    --------------------------------------------------------------
                                Safety
    --------------------------------------------------------------
                                          Personal       Train
                                          Injuries     Accidents
                                     -----------------------------
                                        per 200,000   per million
                                      employee hours  train miles
                                     -----------------------------
    2004                                     7.0          24.8
    2005                                     5.0          18.9
    2006                                     3.8          10.2
    2007T                                    3.3           8.7


    NOTES:
    All figues are DM&E/IC&E only, Non-GAAP and in USD, except where noted
    Operating Ratio is calculated on a Pro Forma basis, which excludes non-
    recurring and other items
    T denotes target; Positive change is favourable; negative change is
    unfavourable
    Undue reliance should not be placed on forward-looking information as
    results may differ materially
    This Fact Sheet contains certain forward-looking statements relating but
    not limited to the anticipated financial performance of DM&E and its
    subsidiaries. Undue reliance should not be placed on forward-looking
    information as results may differ materially.
    




For further information:

For further information: Media: Leslie Pidcock, Tel.: (403) 319-6878,
e-mail: leslie_pidcock@cpr.ca; Investment Community: Janet Weiss, Assistant
Vice-President Investor Relations, Tel.: (403) 319-3591, e-mail:
investor@cpr.ca


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