Bloomberg News

Slim Poised for Africa Deal With Mexico Growth Slowing: Real M&A

October 10, 2011

Oct. 10 (Bloomberg) -- Billionaire Carlos Slim may have to look 6,000 miles away for acquisitions if he wants to use a mounting cash pile to rejuvenate sales at America Movil SAB.

America Movil, the wireless carrier 42 percent controlled by Slim and his family, will increase revenue 6 percent this year and next, the slowest rate in its history, according to analysts’ estimates compiled by Bloomberg. The largest mobile- phone company in the Americas may spend some of its cash from operations, which is projected to reach a record $12.6 billion next year, on takeovers to help boost sales, said Stifel Nicolaus & Co.

With America Movil already owning networks across Latin America, the Mexico City-based company may look for purchases as far away as Africa where much of the population has yet to adopt mobile phones, according to Corp. Actinver SAB. While Greenwood Capital says Slim may instead opt to ramp up share buybacks and dividend payouts, the world’s richest person could also find bargain telecommunications purchases in Central America or the Caribbean, said Stifel Nicolaus.

“America Movil has a huge amount of cash and strong cash flow,” Tim Ghriskey, who oversees $2 billion as chief investment officer of Solaris Group LLC in Bedford Hills, New York, said in a telephone interview. “They will continue to use their cash to make acquisitions. At some point, they would have to look beyond Central and South America for expansion. Even Africa might be an enticing geography given the low cell-phone penetration.”

An America Movil official who can’t be named under company policy declined to comment on potential acquisitions.

Slowing Revenue Growth

America Movil’s revenue will only increase 6 percent this year to about 645 billion pesos ($48 billion), based on analysts’ estimates compiled by Bloomberg, as Latin America’s mobile-phone market becomes saturated. Brazil, Latin America’s largest economy, and Argentina, the fastest growing in the region, already have more mobile devices than people.

Expansion into the land-line phone business with the purchase of Telmex Internacional SAB, announced in January 2010, is also curbing growth as customers cut off home phone lines in favor of mobile devices. In 2009, when America Movil’s networks were almost entirely wireless, revenue was up 14 percent.

America Movil held $7.5 billion in cash at the end of June, the most of any non-financial company listed in Mexico, according to data compiled by Bloomberg. It has since raised $3.1 billion selling bonds and is generating between $2 billion and $3 billion in cash every quarter, according to Stifel Nicolaus. Even after it spends about $6.5 billion next month to buy full control of Telefonos de Mexico SAB, known as Telmex, the company’s cash from operations will still increase to an all-time high of $12.6 billion next year, estimates Chris King, an analyst at Stifel Nicolaus in Baltimore.

Billions in Cash

“They’re generating billions of dollars in cash,” Martin Lara, a telecommunications analyst at Actinver in Mexico City, said in a phone interview. “They could be interested in assets in any part of the world.”

America Movil, spun off from Telmex in 2001, eclipsed its former parent by buying up wireless airwaves and operators throughout Latin America to take advantage of surging demand for mobile devices. It now operates in 18 countries and represents about 62 percent of the $57.2 billion in publicly disclosed holdings of Chairman Emeritus Slim, 71, and his family, data compiled by Bloomberg show.

Slim, who Forbes magazine estimated had a net worth of $74 billion as of March, also owns retail, mining, banking and construction companies in Mexico, plus stakes in New York Times Co. and Saks Inc. in the U.S.

Decade of Acquisitions

America Movil created its pan-Latin American network country by country during the last decade with more than $80 billion in acquisitions of companies and assets, data compiled by Bloomberg show. It spent $1.3 billion in 2003 on takeovers to move into Brazil, Argentina, Colombia, El Salvador and Nicaragua. In the next two years, it paid almost $1 billion to buy companies and licenses in Chile, Peru, Paraguay and Uruguay.

Now Slim may be able to expand by acquiring companies such as Luxembourg-based Millicom International Cellular SA, which operates in countries including Bolivia, where America Movil has no mobile-phone network, said Stifel Nicolaus’ King. The company had 14.1 million subscribers in Central America as of June. Emily Hunt, a spokeswoman for Millicom, didn’t respond to phone and e-mail messages seeking comment.

With a market value of $10.8 billion as of Oct. 7, Millicom also has networks in seven African countries from Rwanda to Chad, offering America Movil the chance to enter the continent with an established network, King said. Millicom shares were little changed at 675 koronor today in Stockholm.

Africa Expansion

Fewer than 70 percent of people in several African countries, including Ivory Coast and Cameroon, have cell phones, said Lara of Actinver.

“Africa has always been discussed,” Lara said. The mobile-phone “penetration levels are still very low.”

America Movil Chief Executive Officer Daniel Hajj, Slim’s son-in-law, said in an interview in March that the company wouldn’t rule out acquisitions in Europe, Africa or Asia.

“We’re open to review whatever type of operation that could come up in some other part of the world,” he said. “The important thing is that it makes sense for us.”

While America Movil may eventually expand into Nigeria, South Africa or Kenya, it may make more sense to continue to add networks in Latin America or pursue Sprint Nextel Corp. as a “cheap” opportunity, Brian Barish, Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, said in a phone interview.

Backyard Bargains

Tomas Lajous, a UBS AG analyst in Mexico City, said a move into the U.S. telecommunications industry is unlikely given the size of the companies and AT&T Inc.’s approximately 9 percent stake in America Movil. Sprint had a market value of $7.3 billion and traded at a 78 percent discount to its sales as of Oct. 7.

Slim may also be able to find potential bargains in his own backyard in the Caribbean, said Stifel Nicolaus’ King. He may look at closely held Digicel Group Ltd., the Kingston, Jamaica- based company with mobile networks in 32 markets in the Caribbean, Central and South America and the South Pacific. America Movil is already acquiring Digicel’s operations in Honduras and El Salvador. Antonia Graham, a spokeswoman for Digicel, declined to comment.

Share Buybacks

Still, America Movil’s best use of cash may be buying back its own shares, said Walter Todd, who helps manage about $950 million at Greenwood Capital in Greenwood, South Carolina. The shares had dropped 18 percent this year before today, compared with a 14 percent decline in Mexico’s benchmark IPC index, giving America Movil a market value of 1.13 trillion pesos ($83.7 billion). The company’s U.S.-listed shares have declined 25 percent this year.

“Given that the stock is down so much this year, probably the best use of money with the least risk is to buy back its own stock -- and buy back in a big way,” Todd said in a phone interview. “If the alternative is go buy a company in a continent that I have no presence in or buyback stock and pay a dividend, that’s a no-brainer to me.”

America Movil rose 2.6 percent to 14.91 pesos today in Mexico City, the biggest gain in four weeks.

After weighing acquisitions of telecommunications carriers in Serbia and Poland and ultimately pulling out of the bidding, America Movil instead increased its share repurchase fund in March by 50 billion pesos ($4.18 billion), adding to the 35 billion pesos already available, according to company filings.

Investing During Turbulence

With the MSCI AC World Index of developed and emerging nations falling into a bear market last month as the European sovereign debt crisis threatens to push the global economy into a recession, America Movil may have an easier time finding affordable deals, said Andrew Campbell, an analyst at Credit Suisse Group AG in Sao Paulo.

America Movil entered Argentina in 2003 with an acquisition as the country began emerging from an economic crisis and bought up assets in Brazil a decade ago during the telecommunications industry’s collapse. Slim’s penchant for investing during times of turbulence mirrors his father, who bought real estate in downtown Mexico City in the aftermath of the nation’s 1910 revolution.

“They benefit from the strong balance sheet they have and the cash position they have,” Campbell said in a phone interview. “If there were to be some distressed assets outside of Latin America, if they saw an opportunity for value creation, they wouldn’t rule out taking look at it.”

--Editors: Sarah Rabil, Daniel Hauck.

To contact the reporters on this story: Crayton Harrison in Mexico City at tharrison5@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Peter Elstrom at pelstrom@bloomberg.net.


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