(The following article by Dan Margolies was posted on the Kansas City Star website on October 6.)
KANSAS CITY — A Mexican government agency has approved Kansas City Southern’s bid to buy a majority interest in Mexico’s biggest railroad.
Kansas City Southern announced Wednesday that Mexico’s Foreign Investment Commission had given it the go-ahead to purchase a controlling interest in TFM SA from Grupo TMM, its Mexican partner. Grupo TFM carries more than 40 percent of Mexico’s rail cargo.
Kansas City Southern already owns nearly 37 percent of TFM and wants to buy Grupo TMM’s 48.4 percent interest in the railroad. The approval of the Foreign Investment Commission is necessary for a foreign company to become majority owner of a Mexican railway company.
“This is a very significant step,” said Warren Erdman, Kansas City Southern’s vice president of corporate affairs. “We couldn’t go forward without the agency’s approval.”
The decision was a crucial ruling in what has become a somewhat tortuous process for the locally based railroad company.
TFM was created in 1997 when Kansas City Southern and TMM joined together to buy a majority stake in the government-run railroad for $1.4 billion. TFM links the country’s biggest ports with Mexico City and the U.S. border at Laredo. At the time the acquisition was considered bold. The next-highest bid was $600 million.
Kansas City Southern wants a majority stake in the railroad to form a new transnational carrier to be called Nafta Rail. Kansas City Southern’s strategy is to create a 6,000-mile rail network that would run from the Midwest to Mexico City. Through other carriers, it would connect with Canada, capitalizing on the growing trade among the three countries.
Kansas City Southern first proposed to buy Grupo TMM’s stake in TFM in April 2003 for $412 million in cash and stock. But Grupo TMM’s biggest shareholder rejected the sale a few months later, triggering a dispute between the two railway companies.
After beginning arbitration to settle the matter, both sides in April agreed to resume negotiations.
The approval comes after the Foreign Investment Commission last month turned down Kansas City Southern’s bid on technical grounds.
The agency was facing a deadline, and Kansas City Southern’s application would have been approved automatically had the deadline passed.
The commission’s approval came after both Kansas City Southern and Grupo TMM sought reconsideration of that ruling.
It remains for Kansas City Southern to complete the purchase. Kansas City Southern and Grupo TMM have agreed to extend an earlier deadline for reaching agreement until June 15, 2005. The Foreign Investment Commission’s ruling remains valid until Oct. 5, 2005.
In a written statement, the chairman of Grupo TMM, Jose F. Serrano, said that his company was pleased with the commission’s decision, “which is another important step in our efforts to complete a transaction with Kansas City Southern.”
In August, 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.