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Today, Kansas City Southern and Grupo TMM S.A. announced the Mexican Foreign Investment Commission (FIC) denied KCS' application to acquire TMM's interest in TFM S.A. de C.V. A foreign company seeking to become the majority owner of a Mexican firm must obtain FIC approval.

The decision is "not in the spirit of the North American Free Trade Agreement nor consistent with previous [FIC] decisions on foreign majority ownership, including ownership of another railroad in Mexico," KCS and TMM officials said in a joint statement, adding that they will try to convince FIC members to reconsider their decision.

KCS and TMM officials agreed to extend their April 2003 acquisition agreement — under which TMM will sell its 38.4 percent TFM stake to KCS — until June 15, 2005, to provide more time to complete the transaction.

The deal has followed a rocky path during the past year. In August 2003, TMM shareholders — led by majority holders TMM Chairman José Serrano and TMM Chief Executive Officer Javier Segovia — rejected the agreement and TMM officials sought to terminate the deal. In October, KCS initiated an arbitration proceeding after a 60-day informal negotiation period expired. The Delaware Court of Chancery later granted KCS a preliminary injunction "to preserve the status quo" pending resolution of the dispute and enjoined TMM from taking any action that would violate agreement terms.

In March, an AAA International Centre for Dispute Resolution arbitration panel ruled the agreement is binding and in effect. A month later, KCS and TMM officials agreed to fulfill the obligations of the deal and not pursue a second arbitration phase, under which the panel would have determined damages and remedies.

Then last month, KCS and TMM reached a new agreement under which TFM will sell its 51 percent ownership stake in Mexrail Inc. to KCS for $32.7 million. KCS placed shares of Mexrail — which owns The Texas Mexican Railway Co. — in a voting trust pending the Surface Transportation Board's approval of the Class I's petition to commonly control Tex Mex, the Kansas City Southern Railway and Gateway Eastern Railway Co. as part of its NAFTA Rail plan.