Mumbai: Canadian Pacific Railway Ltd (C P Rail), the country''s number two railway, has agreed to buy Dakota, Minnesota & Eastern Railroad Corp (DM&E), the largest US regional railroad, for about $1.5 billion in cash.

C P Rail, based in Calgary, Alberta, would use the acquisition to expand its network by about 2,500 miles of track and increase access to US Midwest markets.

DM&E is owned by London-based Electra Private Equity, which originally invested in the company more than 20 years ago.

CP Rail said the agreement includes a $1.48 billion cash payment at closing and future contingent payments of up to about $1 billion. The company expects the deal to close in the next 30 to 60 days.

"The DM&E is a high-quality, growing regional railroad that complements our existing franchise," C P Rail chief executive Fred Green said in a statement.

"This investment presents the opportunity for future growth through further expansion of our network and is accretive to our EPS in 2008," he added.

DM&E, which serves eight states, has been pursuing a strategy to become the third rail carrier in Wyoming''s Powder River Basin, North America''s largest and most rapidly growing source of low-cost, low-sulphur coal.

C P Rail would give Electra up to $350 million more if construction starts on the Powder River Basin expansion project before the end of 2025.

Additional payments up to $707 million will be due if certain coal tonnage goals in the Powder River Basin are exceeded before the end of 2025.