6 November 2007
CPR v. the NIMBYs at Mayo Clinic
When Canadian Pacific Railway Ltd. went cross-border
shopping and spent $1.5-billion (U.S.), it didn't count on a little-used stretch of track near the world
famous Mayo Clinic to throw the deal off course.
Just last week, CPR executives said they expected to receive clearance to buy the Dakota Minnesota & Eastern Railroad Corp. by May.
Any regulatory decision will now likely be postponed until next October, after the U.S. Surface Transportation Board ruled that it will
take a detailed look at Calgary-based CPR's plan to buy DM&E from private equity owners.
The ruling comes after a series of complaints, including from rail rival Burlington Northern Santa Fe Corp. of Fort Worth, Tex., and
the Mayo Clinic, which is sounding the alarm on potential terrorism on trains or derailments near the renowned hospital in Rochester,
Minn.
Hospital officials argue that William Worrall Mayo staked the ground first.
He founded his private medical practice in 1863 and the Winona & St. Peter Railroad Co.'s tracks finally reached Rochester in the
fall of 1864. Mr. Mayo's two sons joined the busy practice in the 1880s.
The Rochester Coalition, a group of Minnesota business and government leaders, opposes plans for sharply increased train traffic
without adequate safety buffers.
"This is definitely a grassroots protest," said Bruce Fairchild, regional director of operations at the Kahler Grand Hotel
and three other hotels near the Mayo Clinic.
"It's not that we don't want Canadians down here investing their money. If you take a look, you'll see that the train tracks come
right through heart of Rochester at street level," Mr. Fairchild said in an interview from the stately Kahler, built in 1921
across the street from the Mayo Clinic.
Today, the medical complex, which employs 28,000 people, has more than 1,500 hospital beds near tracks to be acquired by CPR. Intensive
care patients, premature newborns, transplant recipients, and accident victims would be placed at risk in the event of a derailment of
hazardous materials, with few options for evacuation, the Mayo Clinic said in its filing to the regulatory board.
"While Mayo Clinic closely guards the confidentiality of its patients, public information routinely available reveals that
national and international leaders and their family members routinely travel to Mayo Clinic in Rochester, Minn., for diagnosis and
treatment of highly complex medical diseases and disorders," the hospital added in its submission. "Such information will not
have escaped the notice of those desiring to cause harm and makes Mayo Clinic a unique terrorist target."
The sprawling hospital is vulnerable because it is within two or three blocks of train tracks, and in some cases, right next to the
rails, Mayo Clinic spokesman Chris Gade said in an interview yesterday.
The Mayo Clinic said in its filing that it hasn't decided whether to oppose the actual sale of DM&E, but it stated major
reservations about CPR's coal expansion plans because up to 43 trains a day would go through Rochester at high speeds, up from two or
three trains at slow speeds.
There have been a series of rail owners over the years, including DM&E since 1986, with just two or three trains a day.
CPR first announced the corporate takeover on 5 Sep 2007. The centrepiece of its U.S. expansion strategy would be
acquiring Sioux Falls, S.D.-based DM&E's right to haul coal at the Powder River Basin in Wyoming.
Burlington and Union Pacific Corp. already transport Wyoming coal, and Burlington has filed its objections to CPR's plans. Other
opponents include the City of Winona in Minnesota, the Iowa Department of Transportation, and Iowa Northern Railway Co.
"While large-scale rail incidents involving hazardous materials are thankfully rare, the potential for disaster for
the Mayo Clinic is real," said the hospital, which was successful earlier this year in helping thwart DM&E's plans to obtain
$2.3-billion in federal U.S. loans for expansion into Wyoming coal.
CPR stressed that it wants to "engage in meaningful dialogue" with the Mayo Clinic in an effort to address safety and
environmental concerns.
But the board's rejection of CPR's request for fast-track approval places the deal in limbo for nearly one year.
For regulatory purposes, CPR argued that its plan to acquire DM&E should be classified as a "minor" transaction. But the
board disagreed, ruling that the deal is a "significant" one that requires greater scrutiny and more time to review.
"A transaction classified as significant must meet different procedural and informational requirements than one classified as
minor," the board said. "For example, applicants are required to submit more detailed information regarding competitive
effects, operating plans, and other issues for a significant transaction than for a minor transaction."
Industry observers say the Mayo Clinic faces an uphill battle in challenging CPR. National Bank Financial Inc. analyst David Newman
said he still expects the board to approve CPR's purchase after a rigorous review, calling the regulatory delay a "minor
setback" for the railway.
Mr. Newman said CPR's decision to buy DM&E, warts and all, may be partly an attempt to ward off hostile takeover attempts by
private equity.
CPR said it is premature to get into details of expansion into the Powder River Basin to haul Wyoming coal because no decision has been
made to spend billions of dollars to install tracks and acquire new trains in the region.
The Mayo Clinic countered that it doesn't make sense for regulators to "don blinkers regarding the Powder River Basin
expansion."
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