(The following article by Randolph Heaster was posted on the Kansas City Star website on September 17.)
KANSAS CITY — A Mexican government agency has rejected Kansas City Southern’s bid to buy a majority interest in Mexico’s biggest railroad.
However, both Kansas City Southern and Grupo TMM, its Mexican partner, said they will seek a reconsideration of the regulator’s ruling.
Mexico’s Foreign Investment Commission was facing a Wednesday deadline on Kansas City Southern’s application to acquire a majority stake in Grupo TFM, said Warren Erdman, Kansas City Southern’s vice president of corporate affairs. Had the commission allowed the deadline to pass, the application would have automatically been approved, Erdman said.
Kansas City Southern and TMM are negotiating with the commission to resolve any outstanding issues, Erdman said.
“It’s definitely a technical denial of the application,” he said. “But we will file for that reconsideration, and TMM is supporting that filing.”
In April 2003, TMM agreed to sell its 43 percent stake in TFM to Kansas City Southern for $412 million in cash and stock. However, TMM’s biggest shareholder rejected the sale a few months later, leading to a dispute between the two transportation companies.
After beginning arbitration to settle the matter, both sides in April agreed to set aside arbitration in an effort to resume negotiations and complete the deal. Part of that process included the filing with the Foreign Investment Commission on June 23, Erdman said.
Kansas City Southern and TMM have extended the deadline to complete the sale of TFM. Under the original agreement in April 2003, that deadline was Dec. 31. The two sides have agreed to extend the deadline to June 15, Erdman said.
Kansas City Southern, which currently owns 37 percent of TFM, is seeking a majority stake in the railroad to form a new transnational carrier to be called Nafta Rail. If the sale is completed, Nafta Rail will be a 6,000-mile railroad stretching from the Midwest to Mexico City.
Last month, TFM agreed to sell to Kansas City Southern a majority interest in the short-line railroad that links Kansas City Southern to TFM. The U.S. Surface Transportation Board must approve that transaction.
Shares in Kansas City Southern closed Thursday at $15, down 7 cents a share.