Listen to this article
Take that, Donald Trump.
Grupo México, a mining conglomerate which owns Mexico’s biggest railway network, has agreed to buy Florida East Coast Railway Holdings Corp (FEC) for $2.1bn
The deal “positions it immediately as a consolidated railway operator in the US, adding a fundamental line in Florida to existing operations in Texas,” the company said in a statement to the Mexican stock exchange.
Grupo México Transportes (GMXT) made its bet on railroad integration one day before offers are due in a tender for Mr Trump’s planned border wall. The US president has vociferously opposed US companies relocating to Mexico but has had less to say about Mexican businesses investing in the US.
Mr Trump also wants to renegotiate the North American Free Trade Agreement but has yet to spell out his demands or precise timing, although investors have been spooked by suggestions that he could tax imports to the US. GMXT has connections with five border points and eight ports and has 10,570 km of lines in Mexico and Texas, where it has operated for 15 years.
“The acquisition of FEC is an important strategic addition to our North American transportation service offering,” said Alfredo Casar, president and chief executive of GMXT. “Our acquisition of the FEC will significantly enhance the scope, scale and diversification of our service.”
Grupo Mexico says its Texas Pacific unit has already enabled it to offer “a seamless rail service” with Mexico and from Pacific ports to Asia. Renovation of the Presidio International bridge, scheduled to be completed in December, will turn the group into a “strategic logistics operator in cross-border traffic … [and] a strategic partner in trading with Asian markets,” it says.
GMXT prides itself on being the cheapest railway operator in Latin America, as determined by the Organisation for Economic Cooperation and Development, comparable to US and Canadian operators. Its average tariff had been 29 cents per ton-km, but the company said in its fourth-quarter report that the fall in the peso had pushed that down to 24 cents.
The acquisition will boost GMXT’s earnings before interest, trade, depreciation and amortisation by 20 per cent to $930m on a pro-forma basis from $775m in 2016.
The cash and debt purchase included $350m of capital from GMXT and $1.75bn in debt at a variety of maturities. The company said the deal would maintain a strong balance sheet.
FEC, which was bought from funds belonging to Fortress Investment Group, can connect to 70 per cent of the US in 1-4 days and operates some 500,000 diverse cargo loads in the intermodal, aggregates, automobile, chemicals, metals and timber segments a year.
The acquisition comes alongside a $2bn five-year investment plan in Mexico.
GMXT competes with Kansas City Southern in Mexico.