(The following article by Elisabeth Malkin was posted on the New York Times website on April 21.)
MEXICO CITY — Kansas City Southern, the American railroad operator, agreed today to pay $200 million in cash for control of Mexico’s largest railroad, Grupo Transportacion Ferroviaria Mexicana, known as T.F.M.
The deal is a distress sale for Grupo TMM, once Latin America’s largest transportation and logistics company and now so overburdened by debt that it is selling its most valuable assets, leaving a much smaller company behind.
Kansas City Southern said it would combine T.F.M. with two other railroads into a new company to be called Nafta Rail, which would operate 6,000 miles of track and have revenue of some $1.3 billion a year. About half would come from T.F.M., and the rest from Kansas City Southern’s United States rail operations.
Grupo TMM would retain a 22 percent stake in the new Nafta Rail company, a stake that Kansas City Southern said would be worth about $212 million.
Grupo TMM owns 43 percent of T.F.M., with Kansas City Southern holding 37 percent and the Mexican government the rest. The fate of the government’s residual stake in T.F.M. is still to be determined.
Last week, Grupo TMM announced a deal to sell its 51 percent stake in its port operations, its other principal transportation asset, to its partner, SSA Mexico, for $120 million.
Without the ports and the railroad, TMM would become a small logistics and shipping company. “It has withered,” said Ignacio Ponce de Leon, an analyst at J. P. Morgan Securities.
Proceeds from both sales are to be used to pay down debt, including a $177 million bond payment due next month that TMM, which is controlled by the Serrano and Segovia families, has been struggling to renegotiate.
“With less than a month to go before the bond matures, it became a simple choice, either default or sell assets,” said an analyst who follows the company closely. “Their stake in T.F.M. was their most valuable asset.”
T.F.M. links Mexico City with the main rail border crossing in Laredo, Texas, and carries 40 percent of Mexico’s total rail cargo. Four-fifths of T.F.M.’s cargo is shipped across the border. Since it was privatized in 1997, T.F.M. has grown by 15 to 20 percent a year.
The new Nafta Rail would combine T.F.M. with the Texas Mexican Railway, which operates a cross-border rail bridge at Laredo, and the Kansas City Southern Railway, the company’s original business, which covers much of the midwestern United States.
The deal is subject to regulatory approval in both countries. Kansas City Southern did not say how it planned to finance the purchase of Grupo TMM’s controlling stake in T.F.M.