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12/15/2004


Rail News: M&A
KCS, TMM amend TFM acquisition agreement, end long dispute over deal




After more than a year of bickering and almost two years since reaching a purchase agreement for TFM S.A. de C.V., Kansas City Southern and Grupo TMM S.A. have agreed to an amended TFM acquisition agreement.

Today, the companies announced TMM will sell its 51 percent stake in TFM to KCS for $200 million cash, 18 million shares of KCS common stock, a $47 million, two-year promissory note, and up to $110 million in cash and KCS common stock after TMM resolves a VAT Claim with the Mexican government. The $47 million promissory note and a portion of the $110 million payment are subject to certain escrow arrangements to cover potential indemnification claims.

"This transaction, along with our recently approved control of The Texas Mexican Railway Co., offers our shareholders greater value through operating efficiencies and opportunities that will come from common ownership and control," said KCS Chairman, President and Chief Executive Officer Mike Haverty in a prepared statement. "Our customers, both north and south of the border, [also] will benefit from these efficiencies."

As part of the agreement, KCS also will enter into a three-year contract with a consulting firm controlled by TMM Chairman and CEO José Serrano, and KCS and TMM will dismiss all litigation between the two companies after the transaction's completed.

"The combination of KCS and TFM creates an efficient shipping route between the U.S. and Mexico," said Serrano, adding that TMM will use proceeds from the transaction to reduce debt.

Mexico's Foreign Investment and Federal Competition commissions previously approved the acquisition. Although KCS and TMM had met U.S. antitrust requirements, that authorization expired, so the parties again will file required documents with the U.S. Department of Justice.

TFM will continue to operate as a separate company headquartered in Mexico City, but will be commonly controlled by KCS. After the transaction's completed, KCS plans to continue operating under the KCS name and maintain its Kansas City, Mo., headquarters.

In April 2003, TMM agreed to sell its TFM stake to KCS for 18 million shares of KCS' proposed new holding company NAFTA Rail, $200 million cash, and a payment between $100 million and $180 million based on the outcome of TFM's VAT claim. However, TMM shareholders — led by majority stockholders Serrano and TMM President Javier Segovia — rejected the deal in August 2003. A slew of legal proceedings, disputes and re-negotiations followed.

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