CP Rail to acquire railway that owns tracks involved in Lac-Megantic disaster

CP Rail to acquire railway that owns tracks involved in Lac-Megantic disaster
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Canadian Pacific Railway Ltd. has entered into a US$130-million deal to acquire the Central Maine and Quebec Railway, which operates the tracks at the centre of the Lac-Megantic disaster in 2013.

CP Rail and Fortress Transportation and Infrastructure Investors LLC, a New York investment firm, announced a definitive agreement for 774 kilometres of track that provides access to ports in Searsport, Maine, and Saint John, N.B.

The rail line encompasses the tracks that saw a runaway train hauling tanker cars loaded with volatile crude oil break loose and barrel into Lac-Megantic on July 6, 2013, where it derailed and exploded into a massive ball of fire that consumed much of the downtown core, killing 47 people.

The line remains under scrutiny, with Transport Canada recently flagging more than 250 defects on the tracks.

In September, a group of Lac-Megantic residents sought an injunction to block the shipment of dangerous goods in the area pending repairs. A coalition of municipalities has also called on the federal and provincial governments to take further steps toward track safety.

Transport Canada says the railroad operator has notified it that the problems have been fixed. Nonetheless, the Transportation Safety Board of Canada announced a derailment last weekend in West Bolton, Que. It said no there were no injuries or dangerous goods released.

The railway, which mainly transports forest products as well as chemicals and fertilizer through Quebec and Maine, will expand CP Rail’s reach in Eastern Canada via new ports.

“Travelling from Montreal to the Atlantic coast provides an appealingly shorter path through Maine, increasing the competitiveness of that route versus peers,” said analyst Walter Spracklin Walter of RBC Dominion Securities in an investor note.

The railway generates revenue about US$40 million in revenue per year, “so the near-term impact to CP is not particularly material,” said National Bank of Canada analyst Cameron Doerksen.

Longer-term opportunities reside at the Saint John port — the largest by volume in Atlantic Canada — where a large potash export terminal, nearby Irving Oil refinery and ongoing container facilities expansion could open the gates to more CP freight.

“In the long term, this should enable CP to diversify its exposure away from China — served by West Coast ports — as manufacturers relocate their factories to European and other Asian countries such as Vietnam, Malaysia, India and Thailand, served by East Coast ports,” said Desjardins Securities analyst Benoit Poirier.

CP Rail chief executive Keith Creel highlighted “more dots on the map” thanks to Wednesday’s purchase, made after a competitive bidding process.

“This strategic acquisition gives CP a true coast-to-coast network across Canada and an increased presence in the eastern U.S.,” he said in a release.

CP Rail says the deal is expected to close at the end of 2019 and remains subject to customary closing conditions.

The predecessor of Fortress Transportation — a subsidiary of Fortress Investment Group LLC — bought the assets of the bankrupt Montreal Maine and Atlantic Railway for US$17 million at auction in 2014, renaming it the Central Maine and Quebec Railway .

This report by The Canadian Press was first published on Nov. 20, 2019.

Companies in this story: (TSX:CP)

Christopher Reynolds, The Canadian Press

Note to readers: This is a corrected story. An earlier version misspelled Central Maine and Quebec Railway

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