4 September 2007
Canadian Pacific Announces Agreement to Acquire DM&E Railroad
Dakota, Minnesota & Eastern Railroad Corporation
train.
Canadian Pacific Railway Limited announced today that it has
reached an agreement to acquire 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 31 Dec 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 31 Dec 2025.
 
Map of DM&E DM&E Fact Sheet
"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, Minnesota, 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 percent in 2007. The DM&E is headquartered in Sioux Falls, South Dakota, 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 $4.30 to $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 5 Sep 2007. 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 30 Sep 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 cpr.ca. To access the Webcast, click on Investors
and follow the links. The Webcast will be archived through 31 Aug 2008.
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