(Bloomberg News distributed the following article by Rip Watson on August 25.)
KANSAS CITY — Grupo TMM, Mexico’s largest transport company, has canceled the $412 million sale of its stake in Mexico’s biggest railroad to Kansas City Southern.
Grupo TMM’s shareholders last week rejected the cash and stock purchase of its Grupo TFM railroad shares by Kansas City Southern, the fifth-biggest U.S. railroad. Kansas City Southern said both companies remained bound by the agreement.
TMM, which pledged to use proceeds from the sale to pay $377 million of bonds due in May, directed managers “to pursue all reasonable alternatives to restructure Grupo TMM’s outstanding indebtedness,” the company said in a statement.
“We have to sit again at the drawing board and plan some other alternatives,” said Marco Provencio, a TMM spokesman in Mexico City.
Kansas City Southern has said it intends to win control of TFM’s stock and may sue Grupo TMM. The agreement gave Kansas City Southern control of 80 percent of Grupo TFM, creating a 6,000-mile system with annual sales of $1.3 billion. The Mexican government retained 20 percent ownership when TMM and Kansas City Southern acquired majority control in 1997.
“KCS believes the acquisition remains valid and in effect and that both parties are still bound by that agreement,” said Warren Erdman, vice president of corporate affairs. “Our legal team is exploring the options that are available to us.”
Kansas City Southern last week said it was “misled” because the Serrano family, which controls the majority of TMM’s voting shares, spurned the plan it had accepted in April. The Mexican company last week said Kansas City Southern’s decision to contact Mexico’s government about buying the 20 percent stake instead of letting TMM make the contact violated the earlier agreement.
TMM on Monday informed Mexico’s Foreign Investment Commission, which had been expected to issue a ruling on the transaction this week, that the transaction had been abandoned.
Erdman said Kansas City Southern last week told the commission that its application to control Grupo TFM was active. The U.S. company has the right of first refusal to buy Grupo TFM shares if TMM decides to sell them under the 1997 agreement, he said.