Alfa to Buy Axtel to Expand in Mexican Telecommunications

  • Conglomerate to trade Alestra stake for majority in new entity
  • Tie-up creates way to take advantage of regulatory overhaul

Mexico’s Alfa SAB agreed to buy Axtel SAB in a stock deal as competition for phone services increase under new government regulations.

Axtel, whose market value was about 10 billion pesos ($595 million) at Thursday’s close, is expected to issue new stock to be held by Alfa for about 51 percent of a combined entity, the companies said. Financial terms weren’t released and Axtel, which will be merged with Alfa’s Alestra unit, will continue to be publicly traded.

“The two companies are a very good fit,” Alejandro Elizondo, Alfa’s senior vice president for development, said in a telephone interview. “In Axtel’s consumer area, we see very interesting opportunities in using infrastructure, all of those fiber optics, to attend to small and mid-sized companies.”

The merger enables the companies to combine different portions of the telecommunications market at a time when new laws are bolstering the advent of new rivals. While Axtel has focused on residential customers, offering fiber-optic lines with video and high-speed Internet in large cities such as Monterrey and Mexico City, Alestra has migrated to value-added data services.

The shares have been rising since Alestra floated the idea of acquisitions
The shares have been rising since Alestra floated the idea of acquisitions

The tie-up will help Alestra to "cater to the high-end retail market and the corporate market for IT services and connectivity, which is still underserved," GBM said in a report Friday written by analysts including Lilian Ochoa.

Axtel rose 2 percent to 8.12 pesos at 10:16 a.m. Friday in Mexico City while Alfa gained 0.2 percent to 34.22 pesos.

Axtel dollar bonds due in 2020 jumped, rising 11 percent to 101.26 cents. The yield dropped 3 percentage points to 8.64 percent.

Mexico overhauled its telecommunications laws last year to lower costs for smaller providers, eliminating fees that Axtel paid to make calls on America Movil SAB’s network. But competition with bigger rivals such as Grupo Televisa SAB has increased, prompting Axtel to reduce prices to keep subscribers.

Axtel shares have gained 62 percent since July 21 as investors bet it was a takeover target. That speculation was fueled by Alestra executives, who had said on a conference call that growth was a priority and that they would consider mergers and acquisitions.

“Alfa is an A-list partner and you couldn’t ask for somebody better to get
interested in it,” Wilbur Matthews, chief executive officer of Vaguero Global Investment LP, which oversees about $100 million, said from San Antonio. “I would basically look at it and say I think this is one step toward the ultimate acquisition of Axtel-Alestra by a foreign counter-party.”

Alfa’s Elizondo described the transaction as a “share swap,” in which his company will exchange its stake in Alestra for stock that Axtel will issue. That entity’s CEO will be Rolando Zubiran, the current CEO of Alestra, while the chief financial officer will be Felipe Canales, the current CFO of Axtel, Elizondo said. The deal is expected to conclude in December or January, following regulatory approval, Elizondo said.

--With assistance from Benjamin Bain in Mexico City

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