8 November 2007
CPR Deal Expected to Pass, Despite Mayo
Canadian Pacific Railway Ltd.'s plan to haul coal in the U.S.
Midwest is supported by 55 of 56 American cities along the rail route, leaving Rochester, Minn. - home to the Mayo Clinic - with at
best a long-shot chance of spoiling CPR's party, says a research report by National Bank Financial Inc.
Analyst David Newman predicted yesterday that CPR will eventually win U.S. regulatory approval to buy Dakota Minnesota & Eastern
Railroad Corp. for $1.5-billion (U.S.), albeit after a lengthy wait until October, 2008, to get the green light.
Calgary-based CPR's main fight is against the Mayo Clinic and the Rochester Coalition, a local group of business and
government leaders battling to keep the little-used DM&E tracks from becoming a major route for
high-speed trains carrying coal from the Powder River Basin in Wyoming.
"CPR will only have to contend with political pressure, in our view, led by the Mayo Clinic," Mr. Newman wrote in his
36-page report. "The world renowned Mayo Clinic employs 28,000 people, has more than 1,500 beds and is a medical hub
and economic engine in the upper Midwest."
The U.S. Surface Transportation Board's rejection of CPR's request for fast-track approval of its purchase of DM&E,
the largest regional railway in the United States, places the deal in regulatory limbo for nearly a year.
When CPR closed its DM&E deal last month, it appointed U.S. transportation consultant Richard Hamlin to be the trustee during the
regulatory review process. Mr. Hamlin heads an independent voting trust that has been created so that the Canadian carrier doesn't
exercise control over DM&E, pending the regulator making its decision.
The Mayo Clinic warned recently in regulatory filings that it could become the target of terrorists who would exploit the hospital's
location near the train tracks.
But Mr. Newman expressed optimism that CPR will find a compromise to prevent the Mayo Clinic from halting long-term plans
for a flurry of new coal shipments heading east to coal-fired power plants.
"While the Mayo Clinic is raising safety concerns about the railroad, we would note that CPR could readily address any safety
challenge," he said.
CPR prides itself "on being a very safe railroad, and its acquisition of DM&E should improve safety significantly."
Mayo Clinic officials say that the hospital's founder, William Worrall Mayo, founded his private medical practice in 1863, a year
before the train tracks reached Rochester.
"There are arguments about who built first," Mr. Newman said. CPR's supporters note that it wasn't until the 1880s that Dr.
Mayo's two sons joined his practice, which led to the creation of the Mayo Clinic.
Other critics that have filed complaints to the regulatory board include the City of Winona, Minn., and rail rival Burlington Northern
Santa Fe Corp. of Fort Worth, Tex.
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