Grupo Televisa SAB (TLEVISAA), the broadcaster buying a 50 percent stake in Mexican mobile-phone carrier Grupo Iusacell SA, may have effectively seized control of the company without yet obtaining antitrust approval, competitors claimed.
America Movil SAB (AMXL) and NII Holdings Inc. (NIHD) filed complaints to Mexico’s Federal Competition Commission in October asking for sanctions, according to documents obtained by Bloomberg News. The companies said Televisa gained representation in two of Iusacell’s four board seats and chose a new chief financial officer for the carrier even though the $1.6 billion investment announced in April has yet to be approved by regulators.
Televisa bought a stake in a holding company in April with special rights that let it immediately share control of Ricardo Salinas’s Iusacell, competitors claimed. The information in the complaints will probably be used by the commission as it scrutinizes the deal, said Allen Grunes, an antitrust lawyer at Brownstein, Hyatt, Farber, Schreck LLP in Washington.
“It’s going to be something the competition commission is going to examine and will take very seriously,” Grunes said. “It’s very hard to unscramble the egg once you’ve started integrating operations.”
While America Movil’s complaint was dismissed in December based on a technicality and NII withdrew the one it had filed, just days afterwards the commission opened an investigation into deals between unnamed phone carriers and TV-service providers. The antitrust agency said such agreements could represent prohibited concentrations of market power. A lawyer for Salinas said in January that the probe likely targets the Iusacell deal.
$16,000 a Day
Televisa doesn’t exercise control of Iusacell and doesn’t control management, said a Televisa official who can’t be named under company policy. An official at Salinas’s companies who can’t be named under that group’s policy declined to comment.
The commission’s board plans to discuss the proposed deal on Jan. 24, agency President Eduardo Perez Motta told Mexico City’s Radio Formula in an interview broadcast Jan. 18. The agency has until Feb. 7 to notify the companies of its decision.
Televisa, the world’s largest Spanish-language broadcaster, is pursuing the investment in Iusacell to add mobile-phone plans to its packages of pay-TV, home-phone and Internet service. A finding that the two Mexico City-based companies violated an order prohibiting them from proceeding with the transaction while it was under review, may lead to each company being fined as much as 8 percent of their annual sales in Mexico.
Complaints by competitors don’t necessarily prove rules were broken, Grunes said. In the U.S., “gun-jumping” a transaction before regulators have ruled is punishable by fines of as much as $16,000 a day, he said.
Officials for America Movil and NII who can’t be named under their companies’ policies declined to comment.
Televisa Chief Executive Officer Emilio Azcarraga said last year the investment in Iusacell would lead to lower prices and better quality for consumers. That would mean more competition for Carlos Slim’s America Movil and NII, the biggest and smallest of Mexico’s four wireless carriers.
The plan also would also bring Televisa closer to its major rival in the broadcast television business. Salinas is also the majority owner of TV Azteca SAB (AZTECACP), which shares almost all of Mexico’s broadcast viewing audience with Televisa. Televisa and Azteca have both said the Iusacell deal wouldn’t reduce the intensity of competition in broadcasting.
Allowing the two groups to work together would risk creating a communications monopoly, the Mexican Association for the Right to Information said in an October statement.
On April 7, the day the Iusacell agreement was announced, Televisa bought a 1.09 percent stake in GSF Telecom Holdings SAPI, which controls Iusacell, according to regulatory filings. While the stake wouldn’t normally be enough to constitute control, America Movil and NII claimed the shares carry special rights that gave Televisa shared control.
Televisa and Iusacell filed their application for antitrust approval the same day as the GSF transaction, and the agency issued an order suspending the Televisa-Iusacell deal on April 8, according to the agency’s website.
Televisa agreed to invest $37.5 million for 1.09 percent of capital and $1.57 billion in convertible debt, said the Televisa official. The acquisition of capital and convertible debt don’t imply a concentration that would legally require requesting approval from the competition commission, the official said.
America Movil and NII argued in their complaints that based on the bylaws of Iusacell and its holding companies and subsidiaries, Televisa’s GSF deal gave Televisa the right to name one of Iusacell’s four board members. Televisa was to gain the right to appoint an additional board member once the debt it acquired from Iusacell was converted into shares following regulatory approval, according to the complaints.
The Televisa official said the company only has the right to appoint one board member, and once the transaction is authorized, Televisa will have the right to name half the board.
Iusacell’s four board members are Salinas; Pedro Padilla, an executive in the Salinas group of companies; Jose Antonio Lara del Olmo, Televisa’s vice president of tax; and Jaime Cortes Rocha, a lawyer who has done work for Televisa and served on the board of airport operator Grupo Aeroportuario del Pacifico SAB.
According to the airport operator’s annual report, Cortes Rocha was a partner in the law firm Mijares, Angoitia, Cortes y Fuentes SC from 1995 to 2007. Alfonso de Angoitia, Televisa’s executive vice president, was a founding partner of the same law firm from 1994 to 1999 before joining Televisa.
Cortes Rocha declined to comment in a telephone interview.
Those relationships show that Televisa already has representation on half of Iusacell’s board, America Movil and NII claimed in their complaints. Iusacell’s bylaws require a majority of board members for major decisions such as business plans and capital increases.
The bylaws also allowed Televisa to appoint Iusacell’s CFO, America Movil and NII claim. Carlos Ferreiro Rivas, the former finance chief of Televisa’s Sky business, is now Iusacell’s CFO, according to a June 30 U.S. Securities & Exchange Commission filing by Iusacell.
Francisco Borrego, general counsel for Salinas’s group of companies, said in an interview last week that it was natural for Iusacell to hire executives from other companies in the telecommunications industry, including Televisa.
“We’ve complied thoroughly with the order not to proceed with the investment,” Borrego said in the Jan. 12 telephone interview. “In Iusacell there are ex-employees from Nextel, Telefonica, Telcel, Televisa. We have employees from all of them.”
NII withdrew its complaint after a December agreement with Iusacell to drop lawsuits between the two companies, and the antitrust agency rejected America Movil’s filing because the transaction was still under review, according to a document dated Dec. 12.
Three days later, the agency began investigating agreements between phone carriers and TV-programming providers, without naming the companies targeted. While the agency hasn’t contacted Salinas’s ventures or Televisa about that probe, the companies believe the investigation is directed at them, Borrego said in the interview.
An antitrust official who can’t be named under the agency’s policy declined to comment about the review of the Televisa-Iusacell deal and about the probe that began in December.
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