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KCS, TMM settle last dispute tied to TFM acquisition agreement


Kansas City Southern and Grupo TMM S.A. have settled the last remaining issue associated with KCS’ 2005 acquisition of the former TFM S.A. de C.V. from TMM. The companies reached a payout agreement and terminated several contractual relationships to resolve claims and disputes over escrows established as part of the transaction.

KCS will pay TMM $54.1 million in cash to retire two escrows currently valued at about $86.6 million. Without the settlement, KCS estimated the railroad could have owed an additional escrow payout of $40 million in 2010.

As part of the acquisition deal, the parties in 2005 created an indemnity escrow of $47 million to be paid in cash to TMM in 2007 to cover post-closing contingencies, unless either party proved certain breaches or violations in arbitration. Including accumulated interest charges, the escrow currently is valued at about $53 million.

In addition, KCS agreed to create a tax escrow of $40 million to be paid to TMM in equity by 2010, unless KCS experienced certain unavoidable tax liabilities at the former TFM, which now operates as Kansas City Southern de México S.A. de C.V. (KCSM). The escrow currently is valued at about $33.7 million.

“The settlement avoids any possibility of a larger future payout to TMM … [and] equitably addresses the economic relationships between KCS and TMM that resulted from our acquisition of KCSM,” said KCS Chairman and Chief Executive Officer Mike Haverty in a prepared statement.

Contact Progressive Railroading editorial staff.

More News from 9/24/2007