Questions Again Delay K.C. Southern Spinoff

Kansas City Southern Industries Inc. (ticker symbol: KSU) again delayed the long-awaited spinoff of its financial services businesses Monday because of regulators’ questions related to its Janus Capital Corp. unit that could scuttle the transaction, analysts said. The Securities and Exchange Commission may require KSU to recast Janus as an equity investment rather than a consolidated subsidiary, the company said.

That may trigger the Internal Revenue Service to reexamine whether K.C. Southern should be entitled to a tax-free spinoff for Stilwell, the unit that includes Janus. That was worth up to $5.5 billion when it was granted in July. The spinoff itself was initially slated for 1998.

If the IRS balks now, though, the company might cancel the separation because of the tax consequences, said Neal Epstein, an analyst at Putnam, Lovell, de Guardiola & Thornton Inc.

Executives of Denver-based Janus last year objected to the spinoff proposal, demanding independence instead of being part of Stilwell, which includes fund companies Berger in Denver and Nelson Money Managers in Britain.

The railroad operator generated 95% of its earnings from Stilwell in the third quarter, which is powered by Janus, the fastest-growing U.S. mutual fund manager.

The company’s shares rose $3.13 to close at $70 on the New York Stock Exchange.