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KCS, TMM come to terms, close on new Mexrail sale transaction

After a year-long dispute, Kansas City Southern and Grupo TMM have settled at least one difference, which might bode well for the companies' attempt to reach an agreement on the sale of TMM's TFM S.A. de C.V. stake to KCS. Today, the companies announced they reached a new agreement under which TFM will sell its 51 percent ownership stake in Mexrail Inc. to KCS for $32.7 million. On or before Jan. 1, KCS will repay TFM certain advances totaling about $9 million and pay TMM outstanding debt of about $400,000.

The transaction's terms are substantially similar to KCS' and TMM's April 2003 agreement involving a sale of Mexrail, which owns The Texas Mexican Railway Co. As happened last year, the Mexrail shares will be placed in a voting trust pending the Surface Transportation Board's approval of KCS' petition to commonly control Tex Mex, the Kansas City Southern Railway and Gateway Eastern Railway Co.

Last year, KCS submitted a similar application, which was suspended by the STB in October following TFM's repurchase of the Mexrail shares from KCS per the April 2003 agreement. Under the new agreement, TMM can't repurchase the shares.

"This transaction strengthens our KCS franchise by extending control of the U.S. railroad all the way to the Mexican border at Laredo," said KCS Chairman, President and Chief Executive Officer Mike Haverty in a prepared statement. "It provides KCS an opportunity to improve Tex Mex's performance, cut costs, and create a more efficient link between KCS and TFM, [and] is an important step toward our vision of being a stronger rail competitor between the U.S. and Mexico in the fast-growing NAFTA marketplace."

As part of the transaction — which closes today — KCS retains an exclusive option to purchase the remaining 49 percent of Mexrail shares through Oct. 31, 2005, and an obligation to purchase the shares on or before Oct. 31, 2005. KCS officials agreed to comply with all prior STB rulings concerning the international bridge between Laredo, Texas, and Nuevo Laredo, and to operate the bridge under applicable agreement terms.

"While the transaction does not have a direct impact on the pending TFM transaction, it is an important step forward," said Haverty. "KCS has a valid contract with TMM to acquire TFM, [and] both KCS and TMM continue to work together to discharge their responsibilities under the contract. KCS still intends to acquire TFM."

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More News from 8/16/2004