Rail Revenue Keeps KCS on Right Track

Today's business world sees a lot of changes in terms of the way companies are valued and a much different type of investor emerging as a driving force. This is particularly true in the case of infrastructure-based companies, driven primarily by the combination of both private equity investors and other private players who are buying directly into ports, railways, tollways, and public utilities such as TXU. Meanwhile, many of the prices being thrown about don't seem to comply with traditional valuation techniques. All of this infrastructure being bought and sold begs the question, "What basis of valuation are these deals following?" In this issue, seasoned BF interviewer Steve Player poses that question and others to Pat Ottensmeyer, CFO of Kansas City Southern, one of the nation's class-one railroads.

Steve Player: I believe that you joined Kansas City Southern in May 2006, so you just celebrated your first-year anniversary. It seems like a lot's happened in that time. Tell us what was happening at Kansas City Southern when you first came here and why you took the job …

Pat Ottensmeyer: At the beginning of 2006, the company had experienced some difficulties with the finance area, which I would largely attribute to organizational stress as a result of acquiring and integrating with what is now Kansas City Southern de Mexico (KCSM), the largest railroad in Mexico.

They approached me knowing that I had experience in rail mergers. I had served as vice president finance and treasurer at Santa Fe Pacific and then Burlington Northern Santa Fe in the '90s, and was involved in the postmerger integration of those two companies when they were combined in 1995. I was also familiar with Kansas City Southern and known to several of the executive officers here. I thought that the company, largely as a result of the acquisition of KCSM, was about to enter a new phase in which it would play a much different role in the rail-transportation industry in North America.

Connecting the KCS domestic franchise with our Mexican franchise creates a rail network that has tremendous strategic significance in the North American transportation industry, particularly given our access to trans-Pacific trade flows at the port of Lazaro Cardenas in Mexico.