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Shearman & Sterling and Sidley Austin have scored roles on the $1.48bn (£740m) tie-up between American railroad groups Canadian Pacific and Dakota Minnesota & Eastern Railroad (DM&E).

The deal sees Sidley take the lead for Canadian Pacific, which has agreed to acquire DM&E from shareholders, including UK buy-out houses Electra Private Equity and Candover Investments. The transaction consists of an initial $1.48bn cash payment at closing and future contingent payments of up to £1bn (£500m).

Sidley fielded a team led out of Chicago by corporate partner Michael Gordon, assisted by fellow corporate partners Matt McQueen, Devon Spurgeon and Yang Liu.

Shearman, meanwhile, took the lead for DM&E and the selling shareholders under M&A co-head Peter Lyons, Don Lonczak and Doreen Lilienfeld. The London team included tax partners Michael McGowan and Iain Scoon.

Both Shearman and Sidley are regular advisers to their respective clients. DM&E and Canadian Pacific were also advised out of DM&E’s headquarters in Sioux Falls by Davenport Evans Hurwitz & Smith and Leonard Street and Deinard respectively.

The deal sees Canadian Pacific take over all of DM&E’s affiliated companies and will allow for growth of the line into Wyoming’s Powder River Basin to gain access to coal supplies.

Electra and Candover invested in DM&E more than 20 years ago. The deal, which will allow significant expansion of the line, will see the pair take a very significant return from their investment.

Gordon commented: “This was a very interesting deal to be involved in for the sector because almost all of the investors had written off their investment in DM&E. After a long process it has turned out to be one of the best investments they will have ever made.”

DM&E is the largest regional railroad in the US, serving eight states. It has approximately 1,000 employees, 2,500 miles of track and rolling stock including 7,200 rail cars and 150 locomotives.

The transaction, which is subject to review and approval by the US Surface Transportation Board, is expected to be completed within the next three months.

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