August 5, 2011 / 10:38 PM / 6 years ago

Analysis: Slim shows eye for a bargain with Telmex buy-up

MEXICO CITY (Reuters) - Telmex, once the cornerstone of tycoon Carlos Slim’s empire, is set to delist from public markets as the world’s richest man, true to his style, shows his eye for a cheap deal.

Slim seems to see no advantage in continued public ownership of Mexico’s former state telephone monopoly, which he bought two decades ago and listed shortly after.

His America Movil (AMX.N) (AMXL.MX) cell phone giant plans to bid for the remaining 40 percent of Telmex TMX.N it does not already own, buying out external shareholders.

The $6.5 billion deal will bring Slim’s telecom interests -- now a less dynamic part of his empire -- under one roof. It is the second step in a consolidation that started last year when America Movil bid some $21 billion for a chunk of Telmex and Telmex Internacional.

Slim has not explained the drivers behind reuniting two companies he split in 2001, but analysts said it might be just opportunistic after a 15 percent tumble in Telmex’s stock from a year-high reached in May, mostly on regulatory concerns.

“Unless you are in that sort of inner circle, I don’t think we will really get to the answer precisely of ‘why now?'” said analyst Richard Dineen with HSBC in New York.

“He just has that sort opportunistic trait, he is a trader and has the mantra, Warren Buffett’s mantra, of being greedy when others are fearful.”

Market turbulence this week has wiped about $8.3 billion off the value of Slim’s listed companies this week, but at the time Slim announced the deal, Telmex shares were almost a third lower than their all-time peak in October 2008.

U.S. major AT&T (T.N), which teamed up with Slim to buy Telmex in 1990, said it would cut its losses and sell its stake after the company offered to pay 10.50 pesos per share.

Slim, the world’s richest man, started as a broker on Mexico’s stock market and won fame for buying up ailing companies on the cheap and turning them into cash cows.

This was a tactic he honed during the 1980s financial crisis in Mexico, when foreign investors pulled out and many firms went bust, allowing Slim to buy stakes in firms as diverse as a cigarette company and a paper press.

But the key to his wealth was the purchase of stodgy old fixed-line phone company Telefonos de Mexico TELMEXL.MX from the government in 1990, laying the cornerstone for a telecommunications empire now covering most of Latin America.


The decision to fold Telmex into America Movil also reflects the shift in technology which has pushed fixed-line telephony into the background as mobile phone and data services gain, and slower growth in the sector.

Ten years ago, Telmex generated 111 billion pesos in revenue (or $12 billion at the exchange rate of a decade ago), compared with just 44 billion pesos for the then-fledgling mobile arm America Movil, but this was reversed as Telmex started losing clients to cell phone companies, including America Movil.

And although telecoms make up the bulk of Slim’s empire, Thomson Reuters data shows their contribution to gains is shrinking. America Movil shares are up 800 percent in the last 10 years -- double the IPC’s performance -- but have lagged the index slightly in the last five years, up just 44 percent.

Slim’s mining, real estate and banking companies -- Frisco (MFRISCOA1.MX), Grupo Financiero Inbursa (GFINBURO.MX) and Inmuebles Carso INCARSOB1.MX -- have overtaken the telcos and are his best-performing investments this year.

    Shares in Frisco are up 32 percent this year, while the others have fallen by 7 percent compared with a wider fall of 14 percent in the IPC index.

    For Irene Levy, head of telecom think tank Observatel, Slim’s decision came as a natural consolidation step after America Movil emerged as the undisputed cash king within his telecom empire.

    Telmex reported a 12 percent drop in second-quarter revenues compared with a 14 percent gain for America Movil. Overall, America Movil’s revenue last year was more than five times that reported by Telmex.

    “Telmex’s business is heading down and America Movil’s is going up,” Levy said.

    Some analysts said Slim may have decided not to fully absorb Telmex last year in hopes that keeping the company as a separate entity would smooth his bid to win permission to offer television services, a move key to counter the company’s waning call revenue and traffic.

    Unlike his competitors, he has no TV license and cannot bundle it with fixed-line, mobile, and Internet.

    But since the government slapped down his TV bid in May, Slim may have decided to cut his losses on Telmex in the short term, and wait for a new government to take office in December 2012.

    “The combination of having the cash in hand and getting a little bit more certainty about the regulatory environment, seeing that they’re going to get beaten up no matter what, and the stock falling, so why not put in an offer now?” said Gerald Granovsky, senior credit officer at Moody’s Investors Service in New York.

    Several other Slim companies are set to be plucked from Mexico's benchmark stock index next month and this, coupled with the planned delisting of Telmex, will cut Slim's share of the IPC .MXX from 36 percent to 26 percent. In his heyday, it was around 50 percent.

    Additional reporting by Elinor Comlay in Mexico City, editing by Matthew Lewis

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