ANTI-MONOPOLY AGENCY REJECTS NEW EFFORT BY TWO MAJOR RAILROADS TO MERGE OPERATIONS.

Two of Mexico's largest railroad companies, Ferrocarril Mexicano (FERROMEX) and Ferrocarril del Sur (FERROSUR), failed in yet another attempt to merge their operations into a single entity. In a ruling announced Nov. 15, the federal anti-monopoly agency (Comision Federal de Competencia, CFC) reaffirmed an earlier decision to turn down the proposal by the two railroads to create a single operating unit in partnership with financial-services company Grupo Inbursa. The proposed company would have been called Infraestructura y Transportes Mexico (ITM). The CFC, also known as COFECO, voted against a similar effort by the two companies to merge in 2002 (see SourceMex, 2002-05-22).

FERROSUR is a subsidiary of mining company Grupo Mexico and FERROMEX is a unit of business conglomerate Grupo Carso, controlled by Mexican billionaire Carlos Slim Helu.

Under the latest plan, ITM would have been traded on the Mexican stock exchange (Bolsa Mexicana de Valores, BMV). According to a plan presented to the BMV, Grupo Mexico would have controlled about 75% of the new company, while Carso would have held about 16.75% and Inbursa about 8.25%.

The CFC had already voted 3-2 in June of this year to turn down the plan, but the process allowed for an appeal. Slim and FERROMEX director German Larrea had been confident that they could sway the CFC because two members of the commission, Miguel Flores and Agustin Navarro, had initially voted in their favor. FERROMEX and FERROSUR offered certain concessions to the government to make the merger more palatable, including reduced control over the Valle de Mexico cargo terminal near Mexico City and increased access to the regional Chiapas-Mayab railroad in the port of Veracruz.

"With this window of opportunity, [Slim and Larrea] worked to make the proposal more appealing," said Dario Celis Estrada, a columnist for the Mexico City daily business newspaper El Economista.

After reviewing the appeal for several weeks, however, the commission voted 4-0 against the merger, with Navarro absent from the proceedings. In issuing its unanimous decision in November, the CFC hinted that the concessions offered by the two railroads were insufficient to foster competition. "Had we allowed this concentration in the rail-transport market, the two companies would have gained the power to divert traffic, displace competitors, and impose conditions on users," said CFC president Eduardo Perez Motta.

Competitor lobbied hard against merger