Slim to Reunite Mexico Phone Units in $6.5 Billion Offer
Carlos Slim is putting his Mexican phone empire back together after splitting it up a decade ago.
Slim’s America Movil SAB, Latin America’s largest wireless carrier, offered about $6.5 billion to buy the 40.4 percent of Telefonos de Mexico SAB it doesn’t already own, giving it full control of its former parent. America Movil will pay 10.50 pesos (90 cents) a share for Telmex, the nation’s largest fixed-line phone carrier, according to a filing yesterday.
The deal would let America Movil combine its operations with Telmex even more fully than it has since acquiring a majority stake last year, Chief Financial Officer Carlos Garcia- Moreno said. The companies could sell services together and have joint customer-service centers and stores, he said.
“The more integrated a business, the less overlap you have,” Garcia-Moreno said yesterday in a phone interview. “There are many synergies that you can’t get completely unless you have a deeper integration.”
While taking over Telmex will cut administrative costs such as accounting, America Movil will be increasing its stake in a fixed-line business that is losing clients to competitors. Those rivals include America Movil itself, as more Mexicans stop using land lines in favor of mobile phones.
“Arguably, America Movil investors shouldn’t be thrilled with the idea of owning more of a slower-growing, if not declining, asset,” said Christopher King, an analyst at Stifel Nicolaus & Co. in Baltimore who advises holding America Movil shares. “The only advantage to doing this is really to the extent they can eliminate corporate overhead.”
Telmex rose 27 centavos, or 2.6 percent, to 10.49 pesos in Mexico City trading at 4 p.m. New York time. That followed a 7.7 percent increase yesterday, giving Telmex its biggest two-day gain since 2001. America Movil, based in Mexico City, fell 25 centavos, or 1.7 percent, to 14.58 pesos.
The offer of 10.50 pesos a share represented an 11 percent premium over Telmex’s closing price of 9.49 pesos on July 29. The transaction would be the second-biggest this year in Latin America after the merger of Tele Norte Leste Participacoes SA (TNLP3)’s three units in Brazil, according to Bloomberg data.
Taking control of Telmex would allow America Movil to operate a single network in Mexico offering mobile, fixed-line and Internet service. That would help it compete against Grupo Televisa SA (TLEVICPO), the cable carrier that’s offering phone, Internet and TV service and is entering the mobile-phone market.
The packages of services are known as triple-play or quadruple-play bundles, depending on how many features they offer. Slim may be making a long-term bet on the demand for such bundles, said Jorge Lagunas, who manages about $200 million at Mexico City-based Grupo Financiero Interacciones SA.
“In some point in its history, we could see news about quadruple-play from Telmex, or something like that, that could help boost profit at America Movil itself,” Lagunas said.
America Movil has started combining wireless and land-line offers in countries such as Colombia after acquiring fixed networks in last year’s transaction, Garcia-Moreno said.
“Technological convergence is very powerful, and even more so in an environment in which growing demand for data services is materializing,” Garcia-Moreno said.
Slim, 71, bought control of Telmex from Mexico’s government in a 1990 privatization sale. The phone company spun off its wireless unit to form America Movil in 2001.
America Movil acquired its 59.6 percent stake in Telmex last year in a $23 billion transaction that also gave it full ownership of Slim’s fixed-line networks in South America. While America Movil considered making an offer to buy the rest of Telmex then, executives decided to wait until they were more comfortable with the company’s financial situation and its integration of the South American business, Garcia-Moreno said.
Last year’s transaction was approved by Mexico’s antitrust agency, which suggests America Movil is likely to get approval for the new Telmex offer, King said.
America Movil and Telmex have faced a series of blows this year from Mexican regulators, including a $1 billion fine from the antitrust agency for America Movil’s alleged anti- competitive practices in the market for the mobile-phone fees charged to rivals. America Movil is appealing that ruling, as well as the telecommunications regulator’s decisions to cut interconnection fees charged to competitors.
America Movil represents about 59 percent of Slim’s $70 billion in publicly disclosed holdings, according to Bloomberg data. In addition to the America Movil stake, Slim and his family have individual holdings in Telmex worth about $245 million. Slim also controls banking, mining, real-estate and retail companies in Mexico.
Losing Land Lines
Telmex lost 308,000 phone lines to competitors last quarter, ending the period with a total of 15.3 million. The company has about 78 percent of Mexico’s fixed phone lines, while America Movil controls about 70 percent of the nation’s mobile-phone market.
Telmex’s Internet business is growing, with 7.7 million subscriptions at the end of last quarter, up 10 percent from a year earlier. America Movil argued in its acquisition last year of fixed-line businesses in South America that demand for data on wireless and wired networks is set to explode in the region, and combining the Mexican businesses will also take advantage of that trend, Garcia-Moreno said.
“We’re still in a moment before what we expect will be accelerated growth in data demand,” Garcia-Moreno said. “America Movil is in good financial condition, with good liquidity, so it was natural to go ahead with this transaction.”
America Movil had about $7.5 billion in cash at the end of last quarter. The company also signed deals this year giving it access to $4 billion in credit lines.
AT&T Inc. (T), which holds an 8.5 percent stake in Telmex, said it will accept America Movil’s offer for its shares. The offer values AT&T’s holdings at about $1.37 billion and will produce a gain of about 1 cents to 3 cents a share, the Dallas-based phone carrier said yesterday in a regulatory filing.
AT&T also owns about 9 percent of America Movil and is part of a group with Slim and his family that controls the company’s voting shares.
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