(Reuters circulated the following article on December 6.)
CHICAGO — Railroad holding company Kansas City Southern Industries Inc. came a step closer on Tuesday to ending a tumultuous 10-year business relationship when its largest shareholder Mexican logistics company Grupo TMM SA unloaded its stake in the company.
The sale comes 10 years after the two companies bought in to Mexican railroad company TFM S.A de C.V. At the time, KCS owned 49 percent and Grupo TMM 51 percent. After a convoluted and often tense process, KCS took over the remainder of TFM last April.
In return for the majority stake, Grupo TMM received 18 million KCS shares and $110 million to be paid off by March 2006. As well as a railroad network, TFM gives KCS access to the growing Mexican port of Lazaro Cardenas.
“The relationship between the two companies has seen some friction,” said independent railroad analyst Tony Hatch. “And now that’s over, KCS can integrate all its holdings under one philosophy.”
“This is a very good thing for all concerned,” he added.
Grupo TMM sold half of its 18 million shares — or 10.25 percent stake — on the market and the other half to KCS.
KCS quoted a price of $23.25 a share. Grupo TMM said the price was $22.25.
Representatives of Grupo TMM did not return phone calls seeking comment on Tuesday, but Galligan said the discrepancy could possibly be attributed to charges plus fees levied by Morgan Stanley
Grupo TMM gave no reason for the sale, though the company is highly leveraged and may choose to pay off some debts with the proceeds, analysts said.
“We’ve come a long way together and at this point (Grupo TMM’s) sale is the best solution for both parties,” said Kansas City Southern (KCS) vice president for investor relations William Galligan.
KCS will reissue the common stock as preferred stock with liquidation preference of $1,000. The annual dividend on each preferred share will be $51.25, payable quarterly. After eight years, holders will have the right to revert the shares to common stock or have KCS buy them back.
Analysts said the other 9 million shares might reduce KCS’ volatility if freely traded.
KCS shares closed down 98 cents at $23.70 on the New York Stock Exchange on Tuesday.