Grupo Mexico acquires US railway for $2.1bn

Grupo Mexico has announced plans to acquire Florida East Coast Railway Holdings for $2.1bn, in spite of NAFTA concerns

A Florida East Coast Railway Holdings train. The company, steeped in American history, will soon be under Mexican ownership

On March 28, Mexican mining company Grupo Mexico announced its $2.1bn acquisition of Florida East Coast Railway Holdings (FEC) from Fortress Investment Group. Grupo is one of Mexico’s biggest copper miners and freight train operators. The deal secures the company a 351-mile railway between Miami and Jacksonville, and is part of its wider plans to expand US links.

“The acquisition of FEC is an important strategic addition to our North American transportation service offering”, Grupo President Alfredo Casar said. “[It] will significantly enhance the scope, scale and diversification of our service.”

President Trump’s plans to nullify NAFTA could make it harder for Mexican companies to transact business across the border

Grupo currently operates largely in Texas, at five crossing points on the US-Mexico border. It also has connections with eight seaports. Meanwhile, FEC services 550,000 wagonloads of industrial produce every year, from aggregate to chemicals, metals and lumber. Its ties to Jacksonville-based rail operators CSX and Norfolk Southern were also an attraction for Grupo.

To fund the purchase, the Mexican firm will pay $350m cash and shoulder $1.75bn of debt.

Despite the headway already made, Grupo’s huge expansion into the south-eastern US could be derailed. President Donald Trump’s proposed plans to nullify NAFTA are a cause of concern, as they could make it harder for Mexican companies to transact business across the border. Grupo’s hopes of maintaining low-tariff copper exports will be of particular concern in this regard.

Furthermore, the latest deal will now face scrutiny by US regulators, which have recently renewed their emphasis on market competition. For example, in 2016, the US Surface Transportation Board proposed reducing red tape to make it easier for industrial customers to change railroad service providers, which will ultimately increase competition between freight train companies.

Such moves fit with Trump’s recent executive order that called for the scrapping of “outdated, unnecessary or ineffective” regulations. But in the case of a Mexican firm gaining a foothold on US soil, a territorial Trump government could well make an exception and try to block the deal.