RAPID CITY, S.D. — Even before Dakota, Minnesota & Eastern Railroad has filed for federal approval of its planned merger with I&M Rail Link, the Iowa Department of Transportation has raised serious concerns about the deal, the Rapid City Journal reports.
In a letter to the Surface Transportation Board, Iowa DOT director Mark F. Wandro urged the federal agency to give the plan a full review under STB rules that govern minor or significant railroad transactions. Under the rules, the STB instead could treat the deal as an exempt transaction, which requires little regulatory review.
Wandro said questions remain about the deal’s financial viability, its environmental impact and its impact on Iowa shippers. The way the acquisition is structured – DM&E would buy I&M’s assets through a holding company – might give regulators the impression that it is not a merger of two railroads.
“We … do not feel this transaction is merely a benign nonrailroad company acquiring rail assets with no market impacts, operational changes or environmental effects,” Wandro wrote.
However, one STB official said Friday that a merger between two Class 2 carriers such as DM&E and I&M probably would qualify as a minor transaction, regardless. Exempt transactions generally are reserved for deals between the smallest railroads, Class 3 carriers. Wandro said that Iowa has not taken a position on the deal.
“We are neither for or against this transaction, since there is little information currently available,” he said.
Kevin Schieffer, president of DM&E, was not available for comment over the weekend.
On the surface, competitive issues – normally a big concern for the STB – don’t seem to exist in this case. The two track networks don’t overlap, and both companies compete against market-dominant carriers such as Burlington Northern-Santa Fe and Union Pacific.
Dakota Minnesota & Eastern Railroad, based in Brookings, hauls grain, bentonite clay, cement and rock along 1,100 miles of track from Colony, Wyo., to Winona, Minn. I&M moves corn, soybeans, livestock feeds, steel, chemicals and rock in Minnesota, Wisconsin, Illinois, Missouri and Iowa along its 1,400-mile network.
By buying I&M Rail Link, DM&E trains could reach markets and rail connections in Minneapolis, Chicago and Kansas City. That would be especially important to DM&E’s ambitious plan to build a $1.5-billion coal line from Wyoming’s Powder River Basin to Midwestern power plants.
However, the coal project was one of the things that raised eyebrows at Iowa DOT. The new line could carry as much as 100 million tons of Wyoming coal a year. DM&E recently completed an exhaustive environmental-impact statement on the effects of the added traffic in Wyoming, South Dakota and Minnesota.
Because much of that coal will pass through Iowa, Wandro questioned whether a similar impact statement should be done to examine the impact of heavier traffic along I&M’s routes.
He also wondered whether the combined rail system would have the financial wherewithal to stay afloat.
“The proposed purchase by a small short-line railroad with marginal operating profits of a larger regional carrier with no operating profits does not appear to make for a viable combination,” Wandro wrote.