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* Railway says will not extend line into Wyoming, Montana
* Option acquired under DM&E railroad purchase in 2007
* Thermal coal market appears in long term decline - analyst
* Decision came as no surprise; CP Rail stock slips on TSX
* New CEO Harrison to disclose turnaround plan this week
By Susan Taylor
TORONTO, Dec 3 Canadian Pacific Railway
will take a C$180 million ($181.2 million) charge to abandon
plans to expand into the Powder River coal-mining region in the
U.S. states of Wyoming and Montana, citing weakness in the
thermal coal market.
Canada's No. 2 railway acquired the option to build a
260-mile extension into coal region of northeastern Wyoming and
southeastern Montana as part of its C$1.48 billion purchase of
the Dakota Minnesota and Eastern Railroad in 2007.
The decision comes as no surprise because CP had estimated
the expansion project to cost more than C$5 billion, said
National Bank Financial analyst Cameron Doerksen.
"This would have been prohibitively expensive for CP even
with the support of financial partners," Doerksen said.
"The reality is that the U.S. domestic thermal coal market
appears to be in long-term decline, and there are already two
other Class I railroads serving the Powder River Basin."
CP's decision to defer the option indefinitely could signal
plans to sell parts of the DM&E network, said Doerksen.
CP's new chief executive, Hunter Harrison, will reveal his
turnaround plan for investors in New York on Tuesday and
Wednesday. Harrison was the hand-picked choice of CP's biggest
shareholder, William Ackman's Pershing Square Capital
Management, during a bruising proxy battle this year that
unseated the former CEO and board chairman.
In a push to improve operating efficiency, Harrison is
expected to announce deep job cuts, the closure of
rail-classification hump yards, and the relocation of the
company's headquarters in Calgary, Alberta.
Harrison told U.S. union officials in September that CP
planned to sell the 365-mile section of its DM&E rail lines west
of Pierre, South Dakota.
The purchase of closely held DM&E under former Chief
Executive Fred Green gave CP access to lucrative markets in the
booming U.S. Midwest, but it was viewed as a costly acquisition.
CP said on Monday it would take a pre-tax, non-cash charge
of C$180 million, or C$107 million after tax, in the fourth
quarter to write down the Powder River Basin extension plan. The
charge includes the option, engineering design costs, land and
CP shares dropped 73 Canadian cents, or 0.8 percent, to
C$91.97 on the Toronto Stock Exchange in early trading on
Monday. Year-to-date, the stock has climbed about 30 percent on
hopes for performance improvements under Harrison.
Doerksen, who rates CP stock "underperform", said the
current valuation has already priced in a significant
($1 = 0.99 Canadian)
(Additional reporting by Bhaswati Mukhopadhyay in Bangalore;
Editing by Bob Burgdorfer)