(The following article by Randolph Heaster was posted on the Kansas City Star website on August 29.)
KANSAS CITY — Kansas City Southern gave notice Thursday to Grupo TMM, its Mexican partner, to begin a process intended to resolve a dispute over the sale of Mexico’s biggest railroad.
The action was taken after TMM’s controlling shareholders last week rejected a previously reached agreement in which Kansas City Southern was to acquire majority control of Grupo TFM, a railroad jointly operated by Kansas City Southern and TMM.
The notice results from a provision in the acquisition agreement, said Warren Erdman, Kansas City Southern’s vice president of corporate affairs.
The notice triggers a 60-day negotiating period to resolve the dispute, Erdman said.
If no settlement is reached, the matter will then go to an arbitrator in New York, to be litigated under the corporate laws of Delaware, according to Erdman.
“This is a first step in a series of steps to protect our rights,” he said. “We’re starting the legal process.”
Meanwhile, a Mexican regulatory body has closed its review of an application for Kansas City Southern to acquire majority interest in Grupo TFM.
Kansas City Southern said the Mexican Foreign Investment Commission has deferred ruling on its application until the dispute is resolved.
Before last week’s events, Kansas City Southern was proceeding smoothly with plans to create a single 6,000-mile railroad extending from Chicago to Mexico City to be called Nafta Rail.
But on Aug. 18, controlling shareholders of TMM, led by chairman Jose Serrano, stunned Kansas City Southern executives by rejecting an agreement that would have given the Kansas City company 80 percent ownership of Grupo TFM.
Kansas City Southern has stated it believes its contract to acquire TMM’s shares in Grupo TFM remains valid.
“We believe the (Foreign Investment Commission) decision would allow the transaction to move forward once the dispute between the parties is resolved,” said Michael R. Haverty, Kansas City Southern’s chairman and chief executive officer, in a statement. “The FIC decision reaffirms the Mexican government’s commitment to the rule of law.”
In its own statement, TMM said the commission had closed its review of Kansas City Southern’s application. The statement did not indicate whether the commission would reopen the case.
Shares in Kansas City Southern closed Thursday at $12.16, up 15 cents.