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KCS, TMM agree to meet TFM pact obligations, suspend second arbitration phase


Today, Kansas City Southern and Grupo TMM S.A. officials announced they've agreed to fulfill the obligations of their April 2003 TFM S.A. de C.V. purchase pact and not pursue a second arbitration phase — for now.

Last month, an AAA International Centre for Dispute Resolution arbitration panel ruled the TFM agreement is binding and in effect. The panel was prepared to begin determining damages and remedies under a second arbitration phase. However, both parties now reserve the right to proceed with that phase at any time, says KCS Vice President of Corporate Affairs Warren Erdman.

"We've agreed to move forward in a good faith effort to fulfill the agreement to its full effect," he says. "That means seeking regulatory approvals, but it doesn't necessarily mean TMM has agreed to sell TFM. We believe that's part of the agreement, but they don't consider it a [dutiful] term."

TMM had agreed to sell its 38.4 percent TFM stake to KCS, but TMM shareholders — led by majority holders TMM Chairman José Serrano and TMM Chief Executive Officer Javier Segovia &3151; 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 Delaware Court of Chancery then granted KCS a preliminary injunction "to preserve the status quo" pending resolution of the dispute. The court also enjoined TMM from taking any action that would violate terms of the acquisition agreement until the dispute was resolved.

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.

Jeff Stagl

Contact Progressive Railroading editorial staff.

More News from 4/7/2004