(The following article by Randolph Heaster was posted on the Kansas City Star website on December 16.)
KANSAS CITY — Kansas City Southern has agreed to acquire control of Mexico’s biggest railroad, 20 months after originally announcing the deal to create a 6,000-mile transcontinental railroad.
The boards of directors of Kansas City Southern and Grupo TMM said today that they have reached an amended agreement in which TMM will sell its majority interest in Grupo TFM, a railroad that runs from Mexico City through northeast Mexico.
The deal calls for Kansas City Southern to pay TMM $200 million in cash and 18 million shares of Kansas City Southern common stock. Kansas City Southern also could pay an additional $157 million to TMM over several years depending on the settlement of tax issues with the Mexican government as well as the government’s 20 percent interest in TFM.
The deal is similar to what Kansas City Southern announced in April 2003. However, Kansas City Southern’s stock is worth about $85 million more than at that time, boosting the deal’s total value to approximately $660 million.
Also, the original plan to rename the entire railroad to Nafta Rail has been scrapped. Kansas City Southern will be the holding company for the three railroads combined in the acquisition: the Kansas City Southern Railway Co., the Texas Mexican Railway Co. and TFM.
Michael R. Haverty, chairman and chief executive of Kansas City Southern, said the company will still market itself as the NATFA railroad that links the three North American countries through the central trade corridor.
TMM will have about a 20 percent interest in Kansas City Southern following the transaction. However, there will be restrictions on TMM in how it can vote shares as well as its ability to sell those shares, said Ronald Russ, Kansas City Southern’s chief financial officer.
Most regulatory approvals have been obtained from both the U.S. and Mexico, but one authorization from the Justice Department that has expired will have to be refilled, Haverty said. Shareholder approval is expected to take place in 60 to 90 days.
Today’s announcement comes after Kansas City Southern and TMM fought for several months over the deal following the rejection of the original agreement by TMM’s chairman, Jose Serrano. After an arbitration panel ruled in Kansas City Southern’s favor last April, both companies agreed to try and resolve their differences.
“We’re excited that we finally got this thing done,” Haverty said.
Upon completion of the buyout, Kansas City Southern will have about 6,650 employees in U.S., Mexico and Panama.
Shares of Kansas City Southern were up 25 cents, or 1.47 percent, at $17.20 in midmorning trading on the New York Stock Exchange.