| | |  Business News 
Analysis: Slim's Merger Good for Empire, Less So for AmMovil
 Noel Randewich - Reuters
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June 07, 2010
| | Carlos Slim (AP) | |
Mexico City - Tycoon Carlos Slim's plan to consolidate his telecom operations is good for his empire, but it might not be so good for minority shareholders in his fast-growing flagship America Movil cell-phone business.
Reluctance by Slim, the world's richest man, to give specific financial details about benefits he hopes to achieve from a merger announced in January has fueled speculation that the deal is meant to rescue his flagging Mexican fixed-line telecom holding at the cost of America Movil.
"We believe that the main driver for the deal was not cost or revenue synergies, but Carlos Slim's desire to use America Movil minorities to buy out his stake in Telmex and Telmex Internacional at a generous price," New Street Research analyst James Ratzer said in a recent note to clients.
In tender offers that end on Thursday, America Movil, which Slim controls but does not majority own, will acquire regional fixed-line operator Telmex Internacional and most of Mexican fixed-line operator Telmex, both of which he majority owns. He will continue to control America Movil after the tie-up.
Slim says combining the companies will create a telecom powerhouse better-placed to take on rivals like Spain's Telefonica, but some analysts warn the tie-up will be a drag on America Movil.
Telmex is a shrinking company whose shares have lost value since mid-2008 and was the worst performing stock in Mexico's benchmark IPC index last year. With an 80 percent market share it has been forced to freeze prices for a decade while Mexican families increasingly opt to drop their landlines in favor of mobile phones.
Telmex Internacional has done better but faces tough competition in its markets, particularly Brazil, where it is not the incumbent player.
By contrast, America Movil, already Latin America's biggest cell phone company, is still seen as has having strong potential for growth expansion for the next several years.
Combining Telmex Internacional with America Movil will create an operator offering fixed-line, wireless, Internet and television services and make it better placed to compete against Brazilian telecom heavyweight Oi.
For more than a decade, stock investors have made fat returns piggybacking on companies controlled by the cigar-smoking Slim, famous in Latin America for his "Midas Touch" style of buying companies cheaply and turning them into cash cows.
America Movil Chief Financial Officer Carlos Garcia-Moreno told the Reuters Latin American Investment Summit in May that most of the synergies in the consolidation would come from investment spending. Sharing infrastructure will make investment spending go further, he said.
But some analysts are frustrated that America Movil executives have refused to give a specific figure for the savings they expect from the mergers.
"Hey, if these guys give me nothing, how can I make a (recommendation) decision?" complained one stock analyst who asked not to named.
Despite uncertainty and concerns the consolidation will dilute America Movil's value, many analysts recommend buying its shares on expectations it will keep expanding quickly over the next several years in Latin America, where its main competitor is Telefonica.
Santander analyst Gregorio Tomassi upgraded his rating on America Movil to "buy" in May but cautioned that the overall value of creating an integrated telecom company remains unclear.
Under Slim's plan, America Movil will acquire and delist Carso Global Telecom, the holding company he uses to house his majority stakes in Telmex Internacional and Telmex.
America Movil is also offering to buy the rest of Telmex Internacional from minority investors and plans to delist that company as well.
America Movil is offering investors their choice of 11.66 pesos in cash or 0.373 shares of America Movil for each share of Telmex Internacional. It is offering 2.0474 of its share for every share of Carso Global Telecom.
The minority of Telmex not controlled by America Movil will continue to trade on the stock market. While remaining at arms length from America Movil, Telmex is still expected to see some savings in capital expenditures.
America Movil has set aside 9.8 billion shares in its treasury, worth about $24 billion, to pay for the transactions.
Slim and his partners acquired creaking state telephone company Telmex in 1990 for $1.7 billion. Slim remade Telmex into a cash cow and went on to spin off America Movil and Telmex Internacional.
America Movil has gained around 800 percent since its stock started trading in 2001 and Telmex Internacional's shares have risen 45 percent since they hit the market in 2008.
America Movil needs 95 percent of Carso Global Telecom and Telmex Internacional in order to delist them. Few minority shareholders are expected to turn down Slim's offer, since by doing so they would risk holding illiquid shares in a delisted company.
($1 = 12.84 pesos)
(Editing by Bernard Orr)
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