Kansas City Southern Industries, TMM in TFM dividend tiff (1/11/2002)
1/11/2023Families, often the closest ones, clash. Corporate ones, too. Witness Kansas City Southern Industries (KCSI) and Grupo TMM, which are struggling to resolve recent disagreements over a rail bridge-lease transaction and a dividend payment involving KCSI-TMM’s 4-year-old Transportación Ferroviaria Mexicana S.A. de C.V. (TFM).
KCSI and TMM control TFM through Grupo Transportación Ferroviaria Mexicana (TFM). Latin America’s largest multi-modal transportation/logistics provider, TMM holds the controlling interest, or 38.5 percent. KCSI has a 36.9 percent interest.
The bridge-lease disagreement began with a proposal for TFM to buy the northern part of the International Bridge from Mexrail Inc., says KCSI Assistant Vice President Corporate Affairs William Galligan. Mexrail — which operates The Texas Mexican Railway — currently owns the northern portion of the bridge, which links Laredo, Texas, with Nuevo Laredo, Nuevo Leon, Mexico. TFM owns the southern portion.
KCSI owns 49 percent of Mexrail; TMM, 51 percent.
"We opposed the sale because we didn’t see anything positive in the transaction," Galligan says. "[TFM’s] final decision was to do a long-term lease, where TFM would take over operations of the northern part of the bridge through a seven-year lease."
Which KCSI also opposes.
"We just don’t think it’s a good business decision — for us or our shareholders," says Galligan.
More nettlesome to KCSI, though, was Grupo TFM’s decision to pay a dividend to TFM shareholders. KCSI wanted TFM to hold off until KCSI and Grupo TMM buy the Mexican government’s 24.6 percent share in TFM.
KCSI and TMM have been free to buy out the government since Oct. 31, but global economic uncertainties have convinced the two to keep the transaction on ice. KCSI-TMM might complete the buy-back later this year, or whenever "the economy calms down," Galligan says.
"We’re saying, ‘Why not wait to pay a dividend until we take the government out of it?’" he adds.
TFM officials elected not to wait, citing a desire to keep what they consider to be shareholder commitments.
"We had several options — we chose this one," says Senior Vice President Investor Relations Brad Skinner.
On Dec. 21, KCSI filed an application in Delaware Court of Chancery (KCSI is incorporated in Delaware) to enjoin the dividend payment, as well as the bridge-lease transaction. The court Dec. 26 denied KCSI’s requests; TFM subsequently paid a $3.36 per-share dividend to shareholders, which include KCSI and the Mexican government. Mexrail’s board also approved the bridge lease to TFM.
KCSI has filed for arbitration with the Delaware court, Galligan says; Grupo TMM, in a prepared statement, maintains KCSI’s position is "without merit." But TFM’s Skinner is confident the parties will resolve their differences — "the way all families do."
— Pat Foran, Editor
Source: Progressive Railroading Daily News