Buyout groups in $1.5bn railway sale

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The Independent Online

A consortium of British investment firms have sold the American railway group Dakota, Minnesota & Eastern Railroad more than two decades after they first invested in the company.

Canadian Pacific Railway paid $1.48bn (£733m) for DM&E, which was first taken over in 1986 by the buyout giant Candover and investment partners Scottish Eastern Investment Trust, now controlled by F&C, Electra, and Cinven.

The company will add 2,500 miles of new track through America's Midwest to its Canadian Pacific's network.

The Canadians could pay up to $1bn more depending on whether a major new extension goes through and if certain freight targets are hit.

For the sellers, the deal represents a successful exit after an unusually long investment period.

Candover said the value of its stake, last valued at £15.5m, was marked up to £27.4m, while F&C saw its holding's value grow from £12.1m in March to £22.6m.

They could receive up to $1bn more if targets related to the development of the Powder River Basin in Wyoming are met by 2025. The basin is a major source of low-sulphur coal, and DM&E is hoping to become the third rail group necessary for its development.

If construction begins before 2026, Canadian Pacific will be liable for contingent payments of up to $350m, and another $700m if coal volume goals are reached.

In a release announcing the deal, F&C said: "The original Scottish-based investment trusts financed the development of the North American railroad network in the 19th century and we are proud to have continued this tradition into the 21st century."

Fred Green, chief executive of Canadian Pacific, said: "The DM&E is an excellent fit for Canadian Pacific, making this a strategic end-to-end addition to our network."