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Short line deal might spur rail link

(The following story by Laura McCandlish appeared on the Baltimore Sun website on October 23.)

BALTIMORE, Md. — Maryland Midland Railway Inc., a 70-mile short-line railroad that primarily serves Lehigh Cement Co. in Carroll County, is being sold for about $29.1 million to Greenwich, Conn.-based Genesee & Wyoming Inc., operator of close to 50 short-line and regional freight railroads worldwide.

Situated near the York Railway that Genesee & Wyoming already owns, Maryland Midland could eventually link up with that southeastern Pennsylvania line, executives from Maryland Midland and Lehigh, its biggest shareholder, said yesterday.

The Union Bridge cement operation, which will keep its 12.6 percent stake in the railroad, hopes the Genesee acquisition will eventually give it access to more competitive rail transfer rates. Lehigh Cement's headquarters is in Allentown, Pa.

The short line now has to hand off all cars to CSX Corp. at its terminals in Highfield, in Washington County, and Glyndon, in Baltimore County. Maryland Midland lacks access to nearby major rail interchanges in Hagerstown and Baltimore.

"If we had two or three options, the rates would be more competitive," said Kari Saragusa, Lehigh's vice president of sales and marketing. "We hope that Genesee & Wyoming holdings, and their future acquisitions, will allow them to connect the Maryland Midland to other lines."

Headquartered near the Lehigh plant in Union Bridge, Maryland Midland's tracks run from Taneytown south to Walkersville, and from Highfield across Carroll and Frederick counties to Baltimore County. The cement and stone industries represent about 90 percent of the 16,000 carloads it carries annually. Lehigh Cement Co. provides close to 65 percent of the Maryland Midland's business, Saragusa said.

The short line's proximity to the York Railway "lends itself to efficiencies that make the financial combination attractive," Genesee & Wyoming's chief executive John C. Hellmann said in a statement. The company would not discuss the fate of Maryland Midland's 30 employees until the deal closes.

Those jobs, the short line's name, its 10 iconic orange and blue locomotives and 400-plus owned and leased freight cars will be retained for now, Maryland Midland executives said.

"Everybody's still got a job," said Dave South, the railway's transportation manager. "The name's not going to change or anything."

Arthur W. Hatfield, an analyst with Morgan Keegan & Co. in Memphis, Tenn., said yesterday that the deal would make sense, especially given the proximity of the Maryland Midway and York Railway.

"This bolt-on acquisition represents a good strategic fit for Genesee," Hatfield wrote in a report yesterday. "The transaction gives us confidence in the company's ability to make acquisitions and grow earnings despite a weaker environment."

Genesee & Wyoming's revenue has more than doubled since 2002, to $478.9 million last year. Second-quarter sales were up more than 16 percent from a year earlier. The company said the addition of Maryland Midland would immediately add to earnings.

Shares of Genesee & Wyoming increased by 96 cents yesterday, to close at $29.26.

Maryland Midland Railway is one of four freight short lines still operating in the state, with a fifth scenic short line for tourists in Cumberland, said David Whorton, spokesman for the American Short Line & Regional Railroad Association.

The short line got its start in 1980, gaining control of track between Walkersville and Taneytown that had once been part of Western Maryland Railroad. One small locomotive then ran less than 200 carloads of freight a year.

Parts of the former Pennsylvania Railroad, from Westminster to Highfield, and then the Finksburg-to-Glyndon line, were purchased in subsequent years.

Fast forward to late 2001, when Lehigh Cement completed a plant expansion that doubled its size and its demand for the short line. In 2005, Maryland Midland purchased the Western Maryland line it had been leasing from the state.

The railway came up short in its bid to purchase track in Washington County between Highfield and Hagerstown, and between Glyndon and Baltimore, from CSX in 1997.

Maryland Midland now is urging Carroll County officials to create more industrial-zoned land in the area. Such zoning would encourage more commercial distribution centers to open along the railway, Bordner, the CEO, said.

"We have very limited land available for someone to come in and start an operation," Bordner said.

Tuesday, October 23, 2007

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