(The following story by Randolph Heaster appeared on The Kansas City Star website on March 30.)
KANSAS CITY, Mo. — Kansas City Southern shareholders overwhelmingly approved measures allowing it to acquire controlling interest of Mexico’s biggest railroad in a deal that could potentially be worth more than $700 million.
At a special shareholders meeting at Kansas City Southern’s headquarters Tuesday, chairman and chief executive Michael R. Haverty announced that 99 percent of shares voting approved the proposal to issue 18 million shares of common stock as part of the deal to acquire Grupo TFM. The approval also allows Kansas City Southern to issue additional shares under certain circumstances.
The deal is expected to close on Friday.
In December, Kansas City Southern and Grupo TMM announced they had reached an agreement for TMM to sell its controlling interest in the TFM railroad to Kansas City Southern. The two companies had jointly operated the growing railroad since 1997, when they acquired majority interest in it from the Mexican government.
In addition to providing TMM with 18 million shares of common stock, Kansas City Southern agreed to pay $200 million in cash. At the close of trading Wednesday, that would put the value of that portion of the deal at more than $535 million.
However, the deal’s total value may end up being around $705 million. Kansas City Southern additionally could pay up to $171 million over several years to TMM based on certain contingencies. Most of the additional payout would be related to tax issues being negotiated with the Mexican government. The contingency payment also could be affected by the Mexican government’s potential sale of its approximately 24 percent interest in TFM.
Haverty said the company was pleased with the approvals received from shareholders and regulators to create a single transcontinental railroad that stretches from the Midwest to Mexico City and on to Mexico’s developing Pacific ports.
“With the railroads already physically linked in an end-to-end configuration, common control will enhance competition and give shippers in the NAFTA trade corridor a strong transportation alternative as they make their decisions to move goods between the United States, Mexico and Canada,” Haverty said in a statement. “It will also allow the company to create greater value for shareholders…”
Haverty said discussions are continuing with the Mexican government over a potentially large tax refund as well as the government’s option to sell its stake in TFM to Kansas City Southern.
Kansas City Southern shares fell 49 cents, or 2.6 percent, to $18.65 in Tuesday trading on the New York Stock Exchange. The stock has been trading in a 52-week range of $12.60 to $20.34.