CP buys U.S. railroad

NEW YORK (CNNMoney.com) -- Canadian Pacific Railway agreed to buy Dakota, Minnesota & Eastern Railroad Corporation for at least $1.5 billion in cash, the companies announced late Tuesday.

CP (Charts), Canada's No. 2 railroad behind Canadian National (Charts), could pay an additional $1.1 billion for the privately-held railroad, depending on whether construction starts on the Powder River Basin expansion project prior to December 31, 2025, and whether or not specified volumes of coal from the Powder River Basin move over the railroad by that time.

The deal expands CP's current network by approximately 2,500 miles and increases its access to U.S. Midwest markets including agricultural products, coal and ethanol. DM&E is the largest U.S. regional railroad.

The railroad sector has seen increased interest recently with Berkshire Hathaway, the investment firm run by Warren Buffett, acquiring 15 percent of Burlington Northern Sante Fe (Charts, Fortune 500), the No. 2 U.S. railroad behind Union Pacific (Charts, Fortune 500).

In a filing late Tuesday Buffett indicated he has a "good faith intention" to buy more than $597.9 million in additional shares, a purchase that would take his stake past the 25 percent mark.

Railroad shares are generally up between 10 and 25 percent in the last six months, although all are off of highs seen in late July. BNSF shares have actually trailed rivals since Buffett's investment was announced in April, closing Tuesday up less than 1 percent from the price before that stake was first revealed in a filing.