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When The State's Negotiations Went South

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By LINDSAY PETERSON and BILLY TOWNSEND, The Tampa Tribune

Published: September 9, 2007

For years, Florida East Coast Industries rebuffed requests from the state to buy its southern line for commuter rail. But in early 2006, CEO Adolfo Henriques was ready to talk.

He had heard about the state's negotiations with CSX Transportation to buy its Orlando area tracks for commuter use. And on Feb. 20, 2006, he e-mailed then-Gov. Jeb Bush. Henriques wanted to know more about the CSX deal. And he wanted to talk about his company's 'statewide rail corridor,' which runs from Jacksonville to Miami.

Bush responded that day, saying, 'I think there is much we can do working together.' And within minutes he forwarded the e-mail to Department of Transportation Secretary Denver Stutler and said they should meet with Henriques together.

Bush did not meet with Henriques, his spokeswoman, Alia Faraj, said. But Stutler did, less than a month later.

Soon after that meeting, state officials began talking seriously to FEC about buying right of way on its east coast line for a passenger rail system. The deal would have brought FEC hundreds of millions of dollars and vastly increased the value of land it owns near the railroad. A major beneficiary would have been one of Bush's closest supporters, Armando Codina, an FEC shareholder and executive.

In the end, Codina profited more directly and immediately.

While FEC was in talks with the state, a group of private equity investors offered the company $3.5 billion for its rail line and real estate. When the sale was finalized this year, Codina cashed in his FEC stock worth about $255 million.

Codina and Henriques declined requests for interviews.

Internal DOT e-mail shows the state's talks with FEC occurred at the same time FEC was talking to a potential corporate buyer. FEC was trying to get the state to agree to pay $1.5 billion for its rail right of way while it was deciding to reject a buyout offer and take bids from other prospective buyers.

DOT officials say their talks with FEC were in the early stages. They say they weren't aware FEC board members were receiving purchase offers and don't believe FEC's talks with the state boosted the company's value before its $3.5 billion sale. Lowell Clary, who oversees the DOT finance department, said the state's efforts to put a price on FEC's rail line were 'very preliminary.'

But internal e-mail shows the state's talks with FEC were serious. Stutler attended many of the meetings with Henriques. And those meetings took on a particular intensity about the time FEC decided to put itself up for sale.

A Major Merger

In early 2005, Henriques was named FEC's chief executive officer. That happened at the same time the state was formulating a new approach to passenger rail, focused on using existing freight rail lines, and preparing to negotiate with CSX.

Less than a year later, in January 2006, FEC announced it was buying Codina's real estate company, the Codina Group.

The deal would give Codina more land across the state to develop, including industrial property near the rail hub CSX planned to build in Polk County. FEC would get Codina's South Florida property - and Codina's political connections.

A Cuban refugee who got rich in South Florida real estate, Codina backed the elder George Bush in his 1980 presidential campaign. After the election, Codina brought 27-year-old Jeb Bush into his company, and over the next two decades, the pair made millions closing development deals.

When FEC bought the Codina Group, Codina took over FEC's real estate arm and joined its board of directors.

Henriques sent his e-mail to Bush in February 2006, a month after announcing Codina would join FEC.

Faraj, Bush's spokeswoman, said she did not know whether Bush was aware that Codina had joined FEC at the time of the e-mail exchange with Henriques. She described that exchange as routine for a governor who is known for his use of e-mail. She also said Bush had no conversations with Codina about the FEC deal.

In an interview for this story, Stutler said he doesn't remember receiving any instruction from Bush about meeting with Henriques. But he said meetings occurred and the state negotiated with FEC through the final months of Bush's term.

During that time, Henriques shuttled between meetings with DOT officials and FEC's board of directors. Henriques and his board were trying to assess purchase offers that started coming in soon after Henriques became CEO. One company approached in October 2005, then in August 2006 and in early November. FEC shareholder documents don't name the company.

E-mail shows that in mid-November, Henriques met with Stutler and Clary and said he wanted $1.5 billion for FEC's rail right of way. Up to that point, they had been talking mostly about FEC's southern piece, from Miami to Jupiter. But if that wasn't worth $1.5 billion, Henriques said, how about the whole thing, from Miami to Jacksonville?

The state was never interested in the whole rail line, Clary said. But Stutler was pushing DOT staff to keep the talks moving, Clary told colleagues in e-mail, and they did. On Nov. 15, Clary asked for estimates on the 'ENTIRE FEC' line 'as soon as possible.'

That same week, the FEC board decided to reject its latest buyout proposal of $2.8 billion, which included $1.2 billion for the railroad. It also decided to put up the company for sale.

Over the next two months, FEC's consultants set up a targeted auction. State officials say they were not told about it.

Discussions Slow, Then Halt

DOT officials working on the deal said they had no ethical concerns about Bush's relationship with Codina or any other aspect of the FEC talks. Bush did not agree to be interviewed, referring questions to Faraj. But he said in e-mail that he has never had any personal financial interest in FEC.

When Bush left office in 2006, the talks between FEC and the state slowed down, Clary said. But they didn't stop. And FEC didn't reduce its estimate of what its rail line was worth.

The talks came to a sudden halt May 8, when the news broke: FEC was being sold. A group of private equity investors with Fortress Investment Group was paying $3.5 billion for FEC's rail line and real estate.

Fortress Investment Group officials declined to comment.

Clary said he wasn't shocked. 'This is a private company. They had no obligation to tell us anything.'

His only concern was whether the DOT could resume talks for FEC's southern corridor. And he has been told they will.

However, Stutler said any South Florida rail deal with FEC is 'five to seven years away' because the state hasn't pulled together federal and local financial support for it.

Stutler said he came to conclude the FEC deal he was pursuing wouldn't work, an opinion he said Bush shared when he briefed him about it.

Stutler couldn't say when he came to that conclusion, and DOT e-mail reviewed for this story made no mention of his doubts. They show that FEC and state officials met in January and were still talking about a possible purchase.

Clary, the state's lead negotiator, wouldn't address the question of whether the FEC line will be more expensive now, given that the investors paid $3.5 billion for FEC and a large piece of that was for the railroad.

'I really don't know what their offer will be,' Clary said. But if the state can't get a 'fair and reasonable' price, there will be no deal.

And according to the state's new passenger rail plan, if there is no deal with FEC - or whichever company ends up with its railroad in the future - there will be no passenger rail system along Florida's east coast.

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