| | |  Business News | June 2009 
Jorge Larrea and Carlos Slim Fined $31.5M
 Ricardo Castillo - The News
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June 26, 2009
Cargo railroad companies Ferromex and Ferrosur were found guilty of monopoly practices and slapped with a total of 31.5 million dollars in fines by Mexico´s anti-trust watchdog agency, the Federal Competition Commission (CFC.)
The main shareholders in both companies are tycoons; mining entrepreneur Jorge Larrea and Carlos Slim, Latin America´s wealthiest man.
Besides the stiff fine, the CFC ordered both companies to separate and return to the original concession status they were awarded by the Secretariat of Communications and Transportation a decade ago when Mexico´s state-owned railroad network was divided into four different lines to avoid a monopoly.
At the time Larrea´s Ferromex was awarded the west coast line from Mexico City to the Sonora border while Slim´s Ferrosur received the line from Mexico City to the Gulf of Mexico Port of Veracruz. The remaining two other lines went to U.S. company Kansas City Southern Industries and the Merida Tapachula short line went to a U.S. company, which withdrew from business after the catastrophic hurricane "Stan" destroyed some 60 bridges on the Pacific coast, and the government failed to rebuild them.
In 2005, Ferrosur had been turned into a highly profitable company and following Carlos Slim´s business tactic of "make it profitable and sell it", the company went on the block and Larrea´s Ferromex acquired it for 360 million dollars. The two companies notified the CFC their intention to merge and the day after the notification they had already carried out the operation without waiting to receive proper authorization.
By 2006, the CFC decided not to authorize the merger because it concentrated a lion´s share of the cargo railroad market into very few hands and such a company would be detrimental to the best interests of consumers and users of this type of cargo service.
"The CFC investigation produced sufficient evidence to note that, despite the prohibition of the merger, both companies are coordinating their operations and specifically, they have exchanged information with the objective of concerting pricing," the CFC final decision on the merger states.
Though the companies did not merge legally, Ferromex established itself as an outsourcing management service provider for Ferrosur taking over the entire operation as a third party supplier. But at the same time Ferromex appealed the decision of the CFC claiming the separation of the two companies.
The decision made on Wednesday appears to be the end of the line for Jorge Larrea´s Ferromex ambitions and establishes that Carlos Slim cannot sell Ferrosur, at least not to Ferromex.
The CFC considered that both companies clearly broke Mexico´s antitrust laws and charged them with being "responsible for a direct violation of the prohibition to carry out absolute monopoly practices, as stated in the Federal Competition Law."
Other companies sharing the fines are Larrea´s Grupo Mexico, Slim´s Grupo Carso, Sinca Inbursa, Lineas Ferroviarias de Mexico, Grupo Ferroviario Mexicano, Infraestructura y Transportes Mexico and Infraestructura y Transportes Ferroviarios, all of them related to the two business moguls. |
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