Win for Kansas City Southern in Mexican rail dispute

Win for Kansas City Southern in Mexican rail dispute

A Delaware arbitrator today ruled in favor of Kansas City Southern in its legal battle to acquire Mexico's largest freight railroad.

The decision means KCS and Grupo TMM will try to settle their dispute over the sale of the remaining shares of TMM's Grupo Transportacion Ferroviaria Mexicana (TFM).

The arbitrator found that a 2003 agreement between TMM and Kansas City, Mo.-based KCS to acquire the railroad remains in force and is binding. TMM owns all the common stock of TFM.

The deal fell apart last August after TMM shareholders opposed the April 2003 sale. The panel found that just because the shareholders rejected the agreement did not authorize TMM to terminate the sale.

TMM officials said in a press release that they will now move on to the second, settlement phase of the arbitration, which still could include a sale of the railroad as well as damages.

TFM is a key link in plans by KCS to launch its NAFTA Railway System linking commercial and industrial regions in Mexico, the U.S. and Canada with a single, north-south service.

"This is a significant vindication of the positions we have taken," said Warren Erdman, KCS vice president of corporate affairs.

Erdman said since the issues in the second half of the arbitration case were more complicated than the first, it is likely to take longer to settle.

While TMM indicated in a statement that it would continue to participate in the second round, company executives said they continue to believe that any transaction cannot occur without approval of TMM shareholders, and the panel's decision did not reach a conclusion on that issue.

"The arbitration process will continue, and Grupo TMM will review the interim award with its counsel and analyze the alternatives available to it in this process," the company said in a statement.