(The following article by Randolph Heaster was posted on the Kansas City Star website on August 17.)
KANSAS CITY, Mo. — Kansas City Southern will pay $32.7 million to buy control of a short-line railroad that connects Kansas City Southern’s operations to the biggest railroad in Mexico.
The deal gives Kansas City Southern control of a small piece in its big plan to create a single railroad that runs from the Midwest to Mexico City.
Kansas City Southern and Grupo TMM said Monday that they have agreed to have Grupo TFM, their Mexican rail joint venture, sell 51 percent of Mexrail to Kansas City Southern. Mexrail owns the Texas-Mexican Railway Co., also known as the Tex-Mex. The short-line railroad runs from Houston to Laredo, Texas.
Under an option in the agreement, Kansas City Southern is obliged to buy the remaining 49 percent of Mexrail for $31.4 million by Oct. 31, 2005.
The Tex-Mex deal originally was part of a bigger transaction announced last year in which Kansas City Southern agreed to buy a majority stake in TFM to create a single, 6,000-mile railroad called Nafta Rail. However, that deal got sidetracked three months later when TMM’s biggest shareholder rejected the sale.
After entering an arbitration process to resolve the dispute, Kansas City Southern and TMM earlier this year agreed to halt the arbitration and return to negotiating the sale to Kansas City Southern. Monday’s announcement appears to be a positive development in resolving the dispute over TFM.
“We’ve taken a small step forward toward realizing our vision for Nafta Rail,” said Warren Erdman, Kansas City Southern’s vice president of corporate affairs.
Talks with TMM regarding the TFM deal are continuing, Erdman said, and Kansas City Southern is confident that the transaction will take place. TMM is Mexico’s biggest transportation company.
The Mexrail shares will be placed in a voting trust pending approval by the Surface Transportation Board, which also reviewed this deal last year.