MEXICO CITY — Mexican copper giant Grupo Mexico said on January 30 it was confident the government will approve the merger of its railroad properties with those of industrial and retail conglomerate Grupo Carso, despite complaints by a competitor that the combination is illegal, according to wire service reports.
“There is a positive attitude (on the part of the authorities) … however they have to review the conditions and the legality of the operation,” said Hector Garcia, deputy director of investor relations for Grupo Mexico. “We don’t see any problems.”
A competing company, Transportacion Maritima Mexicana (TMM) (NYSE:TMM – news), which controls Grupo Transportacion Ferroviaria Mexicana (TFM), said on Tuesday that the merger was not legal.
“The proposed merger violates Mexico’s 1995 privatization laws,” TMM said. “A merger with these characteristics … would take the railway industry on a road contrary to the interest of users.”
Last Friday, Grupo Mexico and Grupo Carso announced that Carso units Frisco and Sinca Inbursa would transfer their share of Carso’s Ferrosur railway unit to Grupo Mexico subsidiary Infraestructura y Transportes de Mexico (ITM).
In exchange, Frisco and Sinca Inbursa would get a 20 percent stake in ITM. Carso and its subsidiaries are part of the business empire of Mexican billionaire Carlos Slim.
TMM argued that the merger is illegal because the privatization law limits the amount one railroad operator can hold in another railroad operator to 5 percent.
Grupo Mexico’s Garcia said the merger with Grupo Carso is “totally” legal because on giving their share in Ferrosur to ITM, Frisco and Sinca Inbursa would end up participating in only one merged railway business.
Officials from the Communications and Transport Ministry were not immediately available for comment. The Ministry as well as the anti-trust watchdog, the Federal Competition Commission (CFC), will have a say in approving the merger.
Jorge Beristain, an analyst for Deutsche Banc Alex. Brown in New York, said he expected that the merger would be approved by authorities, and called it an “excellent idea” that would make railroad operations in Mexico more efficient.”
“I imagine (authorities) prefer a sector with more critical mass instead of various small operators with no scale or access to capital,” he said. “Mexico needs to improve its rail transportation to compete with the United States.”
About 10 percent of Mexican cargo now travels by rail, compared with 40 percent of U.S. cargo, Beristain estimated.
The government completed the privatization of Mexico’s railroads in 1996. Until then they had been operated by the state company Ferrocarriles Nacionales de Mexico. The system was divided into three concessions, in the Southeast, the Pacific and the Northeast.
Grupo TFM, a partnership between TMM and U.S. company Kansas City Southern Industries Inc., operates the Northeast Railway concession, which moves about 40 percent of the rail cargo in Mexico.
Carso’s Ferrosur unit operates the Southeast concession, with routes connecting Mexico City to the Gulf of Mexico ports Veracruz and Coatzacoalcos.
Grupo Ferroviario Mexicano — 74 percent held by Grupo Mexico and 26 percent held by U.S. firm Union Pacific Railways — operates the Pacific-North route through its subsidiary Ferrocarril Mexicano (Ferromex).
Garcia said that the joining of Ferrosur with ITM would allow railway cargo clients to reduce their costs.