I see they’re touring FXE today…
| BNSF | 000032 | U | L | CIUDAD JUAREZ | CI | Departure | 01/12 | 08:15 | TORREON CU | FXE |
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Perhaps this will add to the intrigue. Frank Wilner has written and commented on various scenerios for future rail mergers. This is the lead to his most recent article.
Reprinted from Association Highlights, Jan.-Feb. 2007,published by Association of Transportation Law Professionals]
TANGLED WEB COULD BE PRELUDE TO A TRANSCONTINENTAL RAIL DUOPOLY
Frank N. Wilner__*__
Is Union Pacific (UP) in the hunt for Mexico’s largest and most prized railroad -Kansas City Southern de Mexico (KCSM) - now leased by Kansas City SouthernRailway (KCS)?
What UP possesses to make this a reality - and which BNSF Railway, also in the hunt, may not possess - are the political connections in Mexico.
For sure - and as previously reported in this column - BNSF has the cash to make an unsolicited bid for stock control of KCS; but BNSF may not have enough political muscle to obtain Mexican government approval for control of KCSM.
It is said that with the right political connections in Mexico, one might achieve mostanything. And while UP may be short of cash, it is rich with political connections. Indeed, all it might take for UP to snatch control of KCSM is an unsolicited bid for KCS by a cash-rich private equity firm friendly to UP - such as the Carlyle Group; followed by a break-up of KCS, with KCSM being transferred to UP with the help ofpoliticos in Mexico.
So important are those political connections south of the border that even were BNSF to make an unsolicited bid for KCS, the KCSM routes could still be transferred to UP.
- Frank N. Wilner is an economist and editor-in-chief of the Journal of Transportation Law, Logistics &
Policy. He is author of Railroad Mergers: History, Analysis, Insight*. The views herein are his own, entirely.*
Copyright, 2007, by the
[quote user=“jeaton”]
Perhaps this will add to the intrigue. Frank Wilner has written and commented on various scenerios for future rail mergers. This is the lead to his most recent article.
Reprinted from Association Highlights, Jan.-Feb. 2007,published by Association of Transportation Law Professionals]
TANGLED WEB COULD BE PRELUDE TO A TRANSCONTINENTAL RAIL DUOPOLY
Frank N. Wilner__*__
Is Union Pacific (UP) in the hunt for Mexico’s largest and most prized railroad -Kansas City Southern de Mexico (KCSM) - now leased by Kansas City SouthernRailway (KCS)?
What UP possesses to make this a reality - and which BNSF Railway, also in the hunt, may not possess - are the political connections in Mexico.
For sure - and as previously reported in this column - BNSF has the cash to make an unsolicited bid for stock control of KCS; but BNSF may not have enough political muscle to obtain Mexican government approval for control of KCSM.
It is said that with the right political connections in Mexico, one might achieve mostanything. And while UP may be short of cash, it is rich with political connections. Indeed, all it might take for UP to snatch control of KCSM is an unsolicited bid for KCS by a cash-rich private equity firm friendly to UP - such as the Carlyle Group; followed by a break-up of KCS, with KCSM being transferred to UP with the help ofpoliticos in Mexico.
So important are those political connections south of the border that even were BNSF to make an unsolicited bid for KCS, the KCSM routes could still be transferred to UP.
- Frank N. Wilner is an economist and editor-in-chief of the Journal of Transportation Law, Logistics &
Policy. He is author of Railroad Mergers: History, Analysis, Insight*. The views herein are his own, entirely.*
C
That’s an interesting question. I had never thought about it before, but would the STB need to approve a US railroad’s operations in a foreign country? If so, what would be the rationale behind the need for that approval?
The next sentence:
"You see, it’s highly unlikely the U.S. Justice Department, Federal Trade Commission or even Surface Transportation Board could assert any jurisdiction over UP’s acquisition of a purely Mexican based railroad - assuming those agencies, given UP’s superior political connections north of the border, would even blink an eye.
Last time I looked, KCS was an American corporation.
Yes, KCS is an American corporation but there is enough of a wall separating off the Mexican portion as to preclude the STB having authority over the ownership or control of that portion. Same way the STB can issues orders relating to the US portions of CN and CP but can’t do anything about the Canadian parts of those railroads.
KCS’s US-based holding company owns KCSM. Nothing can happen to KCSM without KCS’s approval, and nothing can happen to KCS without the STB’s approval.
Unless of course the Mexican government nationalizes KCSM, then sells it to UP or BNSF.
Exactly right Jeaton. And since Mexico recently de-nationalized its railroads it’s very unlikely to happen.
Knowing they can’t get the KCSdeM, the BNSF and UP are interested in the Mexican road that runs south from Juarez. I can’t think of its name at the moment but it’s the one Carlos Slim has an interest in.
Mark
The article says that KCS is leasing KSCM. What’s up?
Sent the article to your e-mail.
Received. Thanks!
Well, let’s go straight to the source…
http://www.kcsi.com/corporate/kcsm.html
From the KCS website:
“On April 1, 2005, Kansas City Southern (KCS) completed the purchase of the controlling interest in TFM, S.A. de C.V. (TFM) from Grupo TMM, S.A. (TMM). As a result, KCS owns all of the common stock of Grupo Transportacion Ferroviaria Mexicana, S.A. de C.V. and controls all of the shares of TFM entitled to full voting rights. In December 2005, the name TFM, S.A. de C.V. was changed to Kansas City Southern de Mexico (KCSM).”
So if a private equity firm were to purchase KCS - something that the STB probably would give the okay to - then that firm could divest itself of KCSM to UP, something that the STB probably could do nothing about.
Question: Why would anyone want to buy KCS and then get rid of the one division that ensure’s the financial success of KCS? Without the Mexican connection to the Pacific Coast, KCS is without a transcon connection, and it’s value suffers accordingly. Thus, the hypothetical equity firm would have to make more on the sale of KCSM than it eats in the loss of KCS’s resulting value.
Getting rid of KCSM would most likely result in KCS bankruptcy.
I don’t think that it would be too much of a stretch to consider that the STB would likely approve letting BNSF buy KCS, or rather, what would be left of it after KCSM has been sold to UP. UP and NS might end up with trackage rights out of the deal.
I think it is equally likely the STB would not approve any such parallel mergers given the current political climate. The STB is under a lot of pressure to correct the anticompetitive aspects of those 1990’s mergers. Ya really think they want to stir up that hornets nest even more?
Seems like it would be a good way for the STB to win some brownie points. All they need to do is go a little overboard in requiring trackage rights and terminal rights, and give the shippers a good feeling that they are finally serious about the matter.
OTOH, if KCS sans KCSM were to be doing so poorly as to be on the verge of bankruptcy, then the STB really has nothing the lose by allowing the merger. After all (from my point of view), if the choice is between a merger or a defunct railroad (which provides no service at all), it seems that a choice to keep things afloat is probably the better choice.
Are you saying that Mike Haggerty doesn’t have adequate political connections to prevent such a hijacking?
Do you mean Michael Haverty?