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Rail News: Kansas City Southern

KCS, Grupo TMM plan to place three railroads under 'NAFTA Rail' umbrella


By Jeff Stagl, Managing Editor

On April 21, Kansas City Southern and Grupo TMM S.A. de C.V. announced a series of agreements under which The Kansas City Southern Railway Co. (KCSR), The Texas Mexican Railway Co. and TFM S.A. de C.V. would be commonly controlled by NAFTA Rail, a new Kansas City, Mo.-based holding company that would trade shares on the New York Stock Exchange.

If the transactions are approved by shareholders, and U.S. and Mexican regulators, Grupo TMM subsidiary TMM Mulitimodal would receive 18 million shares (or 22 percent) of NAFTA Rail, $200 million cash, and a potential incentive payment between $100 million and $180 million based on the outcome of TFM's appeal of the Mexican government's January decision to deny the railroad a value-added tax refund of $206 million.

"These transactions will be pro-competitive and allow Mexico to strengthen its position in the North American economy," said TMM Chairman and Chief Executive Officer Jose Serrano in a prepared statement.

NAFTA Rail would obtain a 38.4 percent ownership stake in TFM and 51 percent stake in Tex Mex owner Mexrail Inc.

The $412 million deal would enhance shareholder value; create an end-to-end, 6,000-mile rail network offering seamless U.S-to-Mexico service with more tightly managed border crossings; preserve rail competition in the roads' gateways; improve Tex Mex's infrastructure and operations to better link KCS with TFM; and provide synergies and cost savings between the three railroads, according to KCS and TMM officials.

"It gives customers a better alternative than they had in the past because we'll have common management, and integrated customer-service functions and other services," said Mike Haverty, KCS chairman, president and CEO, during an April 21 press conference in Kansas City.

The railroads also could develop marketing opportunities involving any of the three properties, and share assets and a computerized operating platform. Implemented on KCS in July 2002, Management Control System will be launched on Tex Mex in September and TFM in first-quarter 2004, KCS and TMM officials said.

The deal wouldn't affect jobs: "We hope to increase employment as a result of the transaction," said Haverty.

KCS — which would change its name to NAFTA Rail — currently owns KCSR and an interest in Tex-Mex; KCS and Grupo TMM own 80 percent of TFM, with the Mexican government controlling the remainder.

Haverty would serve as NAFTA Rail chairman, president and CEO; Serrano, as vice chairman of NAFTA Rail and chairman of TFM. Mario Mohar would continue to serve as TFM CEO.

KCSR would retain headquarters in Kansas City; Tex-Mex in Laredo, Texas; and TFM, in Mexico City.

KCS and TMM expect Surface Transportation Board's approval process to take six to 12 months, but raise little concern from other railroads or shippers.

"There's no overlap, so it's going to be difficult to make a case that this is an anti-competitive move," says Haverty.

In the meantime, KCS plans to place Tex-Mex in a blind voting trust.

Serrano believes Mexico's Foreign Investment and Competition commissions will need three to four months to review the transactions.

Contact Progressive Railroading editorial staff.

More News from 4/21/2003