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A Mexican government agency has rejected the proposed merger between two of Mexico’s main trunk railroads — a decision at least one of the would-be merger partners plans to fight.

In January, Grupo México, majority owner of 4,636-mile Ferrocaril Mexicano S.A. de C.V. (Ferromex), and Grupo Carso S.A. de C.V., owner of 922-mile Ferrosur S.A. de C.V. (Ferrosur), announced their intent to merge rail operations.

Under the deal, two Grupo Carso units — Empresas Frisco and Sinca Inbursa S.A. de C.V. — would transfer their Ferrosur shares to Grupo México subsidiary Infraestructura y Transportes Mexico (ITM) in exchange for 20 percent of ITM shares. Grupo México owns 74 percent of Ferromex; Union Pacific Railroad, 26 percent.

But Comisión Federal de Competencia (CFC) May 16 indicated that the proposed merger wasn’t consistent with Mexican privatization law, which limits to 5 percent the equity stake the three main-line concessions — Ferromex, Ferrosur and TFM S.A. de C.V. — can have in either of the other two.

As of May 20, CFC had not issued a statement regarding its reasoning behind the decision.

In a May 17 prepared statement, Grupo México said it "regrets this initial determination, since it is convinced of the clarity of the legal and economic arguments, and the pro-competitive effects of this transaction, including benefits for the users and for the development of the railroad transportation sector, underpinning the petition presented by Grupo to the CFC."

For now, Grupo México and Grupo Carso officials await "the arguments that led the CFC to reject this stock purchase," as well as an opinion from another agency, Secretaria de Comunicaciones Y Transportes, according to the Grupo México statement. "[We] will invoke, if need be, all appropriate legal means, starting in a first stage with the so-called ‘administrative reconsideration recourse’ provided for in the competition law before the CFC itself."

Meanwhile, Grupo TMM, parent company of TFM S.A. de C.V. — and a competitor of both Ferromex and Ferrosur — lauded CFC’s initial ruling.

"The merger of these properties would subvert and challenge the spirit and objectives of the privatization process, and would lead Mexican industry down a path that is contrary to the interests of consumers and manufacturers," said Jose Serrano, chairman of Grupo TMM, which in 1999 asked CFC to submit a bid on the then-for-sale Ferrosur, only to be turned down. "We were confident that Mexican authorities would deny permission for this merger."