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KCS to refocus attention on NAFTA Rail plan after favorable TFM agreement ruling

Kansas City Southern is resuming its pursuit of NAFTA Rail. The railroad plans to seek renewed authority from the Mexican Competition Commission for the proposed transaction under which KCS would place TFM S.A. de C.V., The Kansas City Southern Railway Co., The Texas Mexican Railway Co. and Gateway Eastern Railway Co. under the common control of NAFTA Rail, a Kansas City, Mo.-based holding company.

In June 2003, the commission approved the transaction, then extended its authority 180 days while KCS and Grupo TMM S.A. de C.V. officials tried to resolve their dispute over a TFM purchase agreement reached in April 2003. Consistent with its past practices, the commission opted not to extend its authority after the 180 days expired.

However a week ago, the AAA International Centre for Dispute Resolution ruled KCS' and TMM's acquisition agreement concerning TFM is valid and in effect. The center currently is determining remedies and damages.

Although TMM agreed to sell its 38.4 percent TFM stake to KCS, TMM shareholders — led by majority holders TMM Chairman José Serrano and TMM Chief Executive Officer Javier Segovia — rejected the deal in August. TMM officials then sought to terminate the agreement.

In October, KCS initiated an arbitration proceeding after a 60-day informal negotiation period expired. The the Delaware Court of Chancery granted KCS a preliminary injunction "to preserve the status quo" pending resolution of its dispute with TMM.

In January, the Delaware court held TMM in contempt for revoking TFM's powers of attorney — which required the signature of a KCS representative for transactions exceeding $2.5 million — and granting new TFM powers of attorney to Serrano and TFM CEO Mario Mohar. The court ordered TMM to revoke the new powers of attorney, re-enact the original powers of attorney, and pay KCS' costs and attorney fees for filing the contempt motion.

Contact Progressive Railroading editorial staff.

More News from 3/31/2004