Railway Deal Finally “On Track”
by MATT EHRHORN
Michael R. Haverty
Chairman, President & CEO
Kansas City Southern
Building on founder Arthur E. Stilwell’s vision in 1887 “to build a railroad from the U.S. heartland directly south to the Gulf of Mexico and to Mexico to transport commodities from there to markets throughout the world,” holding company Kansas City Southern (KCS) finally completed its deal with Latin American multimodal transportation company Grupo TMM to obtain controlling interest of Mexico’s biggest railroad, Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. (TFM). KC Southern’s acquisition of TFM puts it at the forefront of U.S.-Mexican freight transportation.
On Tuesday, March 29, a 99% vote was passed by KCS stockholders that approved 18 million shares of common stock (valued at $345 million at the time of the meeting) to be issued to TMM, with potential additional shares worth approximately $171 million to be issued under pending circumstances. After eight years in consideration and planning stages, KCS completed the purchase and assumed ownership of TFM on April 1 in a deal that could total more than $700 million.
In accordance with the Amended and Restated Acquisition Agreement the KCS and TMM boards of directors approved on December, 15 2004, the terms of the acquisition called for TMM to sell its 51 percent voting interest in TFM to KCS for the 18 million shares of common stock, plus $200 million in cash, $47 million in a two-year promissory note and up to $110 million payable in a combination of cash and common stock. The additional $171 million is contingent on tax issues that TFM, TMM and KCS have been negotiating with the Mexican government since 1997.