UPDATE 2-CP Railway seeks options for portion of DM&E line

Tue Dec 4, 2012 3:07pm EST

* Notice comes one day after CP shelves DM&E extension
    * CP acquired DM&E for C$1.48 bln under previous CEO
    * CP will lay out turnaround plan in New York
    * Shares up 2 pct


    By Susan Taylor
    TORONTO, Dec 4 (Reuters) - Canadian Pacific Railway 
said on Tuesday it was exploring options and partnerships for
the western part of its Dakota, Minnesota & Eastern Railroad, in
a further retreat from the costly 2007 acquisition.
    Canada's second-biggest rail carrier, which will lay out a
corporate turnaround plan to investors in New York this week,
made the announcement one day after it shelved plans to extend
the DM&E into the Powder River Basin coal-mining region.
    CP acquired the railroad for C$1.48 billion ($1.49 billion),
gaining access to lucrative markets, notably ethanol. Analysts
had viewed it as a costly deal and were not surprised at the
abandonment of an expansion plan estimated to cost C$5 billion. 
    CP said on Tuesday that the western section of DM&E track, a
660-mile portion from Tracy, Minnesota, west into South Dakota,
Nebraska and Wyoming, would appeal to a low-cost operator
interested in the area's grain, ethanol, clay and merchandise
customers.
    "This portion of the CP network would be an attractive and
highly viable opportunity for a low-cost operator," Chief
Executive Hunter Harrison said in a statement. "CP has
successfully built many partnerships with shortline and Class 1
railroads throughout its system."
    CP, which could not immediately give details on previous
partnerships, said it will continue to serve customers along the
line as it evaluates proposals. 
    "We have undertaken similar reviews on other portions of our
network in the past that have resulted in positive outcomes for
shippers, employees and operators," Harrison said.
    CP, the No. 2 Canadian rail carrier behind Canadian National
Railway Co, said on Monday it will take a C$180 million
charge to abandon an option to build a 260-mile extension of the
line into the coal region of northeastern Wyoming and
southwestern Montana. It blamed slumping U.S. demand for thermal
coal. 
    Harrison, the hand-picked choice of CP's biggest
shareholder, William Ackman's Pershing Square Capital
Management, was appointed after a bruising proxy battle earlier
this year that unseated the former CEO and chairman.
    Under a mission to improve efficiency, Harrison is expected
to announce cutting 5 percent to 10 percent of staff, closing
rail classification hump yards, reducing the fleet of rail cars,
and moving the company's headquarters in Calgary, Alberta.
    Shares of CP added C$1.90 to C$93.25 on the Toronto Stock
Exchange on Tuesday. The stock has climbed about 23 percent
since Harrison was appointed CEO in late June.