Kansas City, Mo. ? Kansas City Southern Industries Inc. and Mexico’s Grupo TMM, S.A., have agreed to combine their railways to form NAFTA Rail.

Under the deal announced Monday, Kansas City Southern will change its name to NAFTA Rail and manage Kansas City Southern Railway Co., Texas Mexican Railway Co. and TFM. The new holding company will be headquartered in Kansas City, Mo.

The transaction must be approved by shareholders and by regulators in both countries.

The railroads already were linked physically. Kansas City Southern also has significant investments in the Texas Mexican Railway and TFM.

The deal calls for TMM Multimodal, a subsidiary of Grupo TMM, to receive 18 million shares, or 22 percent of the new company, $200 million in cash and a potential incentive payment of between $100 million and $180 million.

Shares of Kansas City Southern fell 71 cents to close at $11.06 in trading Monday on the New York Stock Exchange. Shares of Grupo TMM rose 3 cents to close at $3.74.

Michael R. Haverty, Kansas City Southern’s chairman, president and chief executive officer, will hold the same positions with the new company. Jose Serrano, chairman and chief executive officer of Grupo TMM, will serve as vice chairman of NAFTA Rail.

Haverty said common control of the three railroads will make NAFTA Rail a stronger competitor in the hauling of goods between the United States, Mexico and Canada. He called the move a “natural business progression” for Kansas City Southern.

Rick Patterson, an industry analyst with UBS Warburg, said in the short-term the move would hurt Kansas City Southern’s balance sheet, because TMM has significant debt. Provided Kansas City Southern overcomes that obstacle, however, the move should leave the company in a strong position in the long-term, Patterson said.

“TFM is where the growth lies,” he said of the railway that carries over 40 percent of Mexico’s rail cargo and connects the U.S. rail system at Laredo, Texas.

Ronald Russ, Kansas City Southern’s chief financial officer and executive vice president, said he expected it would take between six months and a year for U.S. regulators to approve the deal.

Serrano said he expected regulators in Mexico to take three to four months to approve it.