(The following story by Randolph Heaster appeared on the Kansas City Star website on April 8.)
KANSAS CITY, Mo. — Kansas City Southern and its Mexican rail partner, Grupo TMM, have agreed to suspend an arbitration process over the disputed sale of Mexico’s biggest railroad.
The two companies appear to differ on what that means in Kansas City Southern’s attempt to acquire Grupo TFM and create a single railroad stretching from Kansas City to Mexico City. But one transportation analyst said it appeared to be a step in the right direction.
The press release jointly issued by Kansas City Southern and TMM stated that the two sides had agreed not to move to the next phase of arbitration.
Last month a three-member panel ruled that Kansas City Southern’s agreement to acquire TMM’s 43 percent interest in TFM signed in April 2003 remained in effect. The dispute arose after TMM’s biggest shareholder and chairman, Jose Serrano, voted to reject the sale last August.
Wednesday’s developments appear to be an effort to resolve the dispute and move forward with the transaction through regulatory channels, observers said.
Both companies have reserved the right to proceed with the next phase of arbitration at any time, the joint press release stated. In a stipulation signed by TMM and KCS and accepted by the arbitration panel, the two companies have agreed to discharge in good faith all of the obligations of the acquisition agreement signed April 20, 2003.
Kansas City Southern viewed the announcement as progress.
This is a breakthrough, said Warren Erdman, the company’s vice president of corporate affairs. The parties have decided to hold off on the damages and remedies phase while they mutually pursue consummation of the transaction agreement.
Meanwhile, TMM spokesman Marco Provencio described Wednesday’s development as a cooling-off period and to say any more than that at this moment would be stretching it too far.
Rick Paterson, transportation analyst at UBS, said the move seemed to be a change in strategy by Kansas City Southern in an effort to ultimately complete the deal.
Suspending arbitration shows good faith, and provides the opportunity to restart the regulatory approvals process, he said in a report issued following the companies’ joint announcement.
At the same time, the company (Kansas City Southern) reserves the right to restart the arbitration at the first sign that TMM is not acting in good faith, which in turn could provide more ammunition to seek a large damages claim in phase two of arbitration.
Paterson said the wording of the press release in which the two companies agreed to discharge in good faith all of the obligations of the acquisition agreement had created confusion.
We think the word discharge’ is a little ambiguous, as it can mean terminate’ or honor,’ he said in his report. In this case the meaning is honor.
Kansas City Southern’s stock closed Wednesday at $14.47 a share, up 40 cents.
Bloomberg News contributed to this report.