Slim Bundles Fixed, Mobile in Bid for Efficiency

Mexican magnate Carlos Slim plans to merge his fixed-line operations into America Movil (AMX) in what insiders say is an attempt to bolster the entire company’s competitive edge throughout LatAm. “With the purchase [of Telmex and Telmex International stakes] by America Movil, we will be able to compete better with international players [that already house both operations under one roof,”] says a senior official at one of Slim’s companies. The plan involves a share swap whereby Carso Global Telecom (CGT) will receive 2.0474 AMX shares for every CGT unit. That gives AMX the 59.4% stake in Telmex that belongs to CGT and a 60.7% stake in Telmex International (TI). In addition, AMX will tender for the 39.3% of TI that is held by public investors at a rate of 0.373 AMX shares for every TI share, which values each TI share at MXP11.66, according to a company statement. TI shares closed at MXP11.40. Using market caps based on Wednesday closing prices, when the deal was first announced, the value of the proposed transaction is $22.9bn. “The minority shareholders [of Telmex and TI] will probably oppose the offer,” says a local telecoms banker. He speculates that the relatively small premium Slim is offering on the shares is likely to be received coolly by investors. The executive believes the ratio may need to be improved for both bids. Meanwhile, AMX minority investors may also be displeased to see that the company’s earnings growth – steeper than the fixed line businesses – will be diluted with the bundling of the businesses under one roof, adds the telecom banker. From a debt perspective, the move is neutral for AMX bonds and positive for Telmex bonds, according to Barclays, which says it is not overly concerned about increases in leverage resulting from the combination. No banks were hired as advisors for the process, but the company executive says AMX would turn to Inbursa if it needs assistance with the share buyback. Fitch put CGT and TI on watch positive following the