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The Sage Of Mexico City


Most Mexicans come into contact with billionaire Carlos Slim Helú many times in the course of a normal day. Their bedsheets may come from one of his Sears (S) stores. Their morning pastry may be baked in one of his Globo bakeries, and they may meet friends for lunch at Sanborns, the ubiquitous restaurants linked to his mini department stores. There's a 9-in-10 chance that their mobile phone service is provided by Slim's Telcel. At the office, their telephones and high-speed Internet probably carry his Telmex brand. If they're distracted while driving home from work, the fender-bender may be covered by his Inbursa insurance company. The nightly news most Mexicans watch is on Televisa, whose second-largest shareholder is -- guess who?

BOTTOM FISHER

No wonder some have dubbed Slim the Warren E. Buffett of Mexico. Like the legendary Sage of Omaha, the 65-year-old Mexican mogul has a knack for spotting undervalued assets, especially favoring those that throw off lots of cash that can be used to buy more companies. "Slim is simply a very good operator who's quite cost-conscious and is careful not to overspend on acquisitions," says Damian Fraser, director of equity research at UBS Warburg (UBS) in Mexico City. "In that sense, he's very much like Buffett."

The bottom fishing has worked for Slim. The latest Forbes's list of billionaires ranks this son of a modest Lebanese merchant as the fourth-richest man on earth, with an estimated net worth of $23.8 billion. That's a 40% jump from the previous year. The effervescent Mexican stock market gets a chunk of the credit. The bolsa was up 47% in 2004, buoyed in part by the strong performance of Slim's companies, which account for nearly half the total capitalization.

Now the Mexican businessman is making his presence felt in the U.S. As the single biggest investor in MCI Inc. (MCIP), he's pressuring the board to hold out for richer buyout offers from Qwest Communications International Inc. (Q) and Verizon Communications (VZ) for the telecom company in which his family and the businesses they control have a 13.7% stake.

The MCI gambit is classic Slim. When the troubled telecom filed for Chapter 11 in 2002, he spent $300 million to buy its defaulted bonds, paying as little as 13.5 cents on the dollar. He converted the bonds into shares when the company emerged from bankruptcy last year, and his holdings are now worth $1 billion. Slim says his investment in MCI is purely financial. "If we were interested in operating MCI, we would be buying [control]. We wouldn't be sitting around waiting like masochists," Slim told BusinessWeek. "When we decide to do something, we do it quickly."

That doesn't mean Slim lacks an opinion on how MCI should be run. When MCI executives turned down an $8 billion bid from Quest and started mulling over a lower, $6.75 billion offer from Verizon, Slim made his opposition known. "We feel that the Verizon offer is very low, and that the Qwest offer is [only] a little better," says Arturo Elias, Slim's son-in-law, who acts as the family's official spokesman. "What we have to do is seek the best for our shareholders." Meaning: Slim and his six children, as well as several Slim-controlled companies that own MCI shares, including telecom giant Telmex.

What is Slim's secret? A civil engineer by training and a math whiz who can digest complex financial statements effortlessly, Slim is fast at determining whether an asset is properly valued. Before investing in a company, he familiarizes himself thoroughly with the outlook for that sector and the prospects for competition. But in addition to doing the usual short-term number-crunching that Wall Street analysts do, Slim takes a long-term businessman's view of a company's intrinsic worth -- everything from its human capital to its real-estate holdings -- such as Saks Inc.'s (SKS) more than 300 department stores and its flagship building on New York's Fifth Avenue. (Slim has built up a nearly 12% stake in Saks.) If the company is undervalued, he's interested. Slim's other big holdings include tobacco giant Altria Group (MO), fiber network Global Crossing (GLBC), and SBC Communications, his longtime investment partner in Telmex (SBC).

Slim Inc. is often viewed as a one-man show -- one reason his companies' shares trembled six years ago when he suffered complications following heart surgery. But there's more to his empire than Slim alone. "He [has] a good team that can make companies profitable in a very short time frame," says Celso Garrido, an economics professor at the Autonomous Metropolitan University in Mexico City who uses Slim's empire-building record as a case study in his classes. The Mexican mogul is advised by a small cadre of trusted executives numbering probably no more than a half-dozen -- including his three sons, all of them in their 30s, and the longtime CEO of Telmex, Jaime Chico Pardo, in addition to Eduardo Valdés, an experienced investment banker at his Inbursa financial group. "Our way of working isn't a hierarchical, pyramid style of leadership," says son Marco Antonio Slim Domit, 36, chairman of Inbursa.

As Slim's fortune and influence have grown, investors worldwide are starting to pay more attention to the man who until the 1990s was mostly known as a successful stock broker who founded a conglomerate that made tires, cigarettes, and copper cable and also operated mines and retail stores. His $1.76 billion purchase of Telmex, Mexico's national telecom monopoly, in 1990 catapulted him into unfamiliar territory. But "el ingeniero" proved a fast learner. Slim carried out an impressive turnaround, more than tripling the number of land lines, building a nationwide fiber-optic grid, and vastly improving service.

At the same time, critics charge that Slim and his cadre of lawyers have taken advantage of Mexico's pliant regulators to frustrate attempts by the likes of MCI and AT&T (T) to make inroads into the market. Telmex currently boasts a hefty 70% share of all long-distance traffic, and its operating margins -- 31.4% in 2004 -- are nearly double those of industry giants such as SBC or France Telecom (FTE). "Mr. Slim has enormous influence in this country, and apparently he uses it," says Garrido.

Nonetheless, Slim has demonstrated that he can succeed outside his home market. His América Móvil (AMX) has become the largest cellular-phone operator across Latin America, with more than 61 million subscribers, thanks to a string of acquisitions. The company's stock soared 88% last year. Telmex is also expanding overseas, spending $360 million last year to purchase MCI's controlling interest in Brazilian long-distance operator Embratel Participaçoes.

Slim has built up his telecom empire by snapping up the assets of world-class players that poured billions into Latin America in the 1990s only to beat a retreat when the telecom boom cooled and the economies of Brazil and Argentina tanked. In 2003, for example, Telmex scored a coup when it bought out the assets of AT&T Latin America for $207 million, including a fiber-optic network that cost $1 billion to build.

Not everything the Mexican touches turns to gold, though. In 2000, not long before the U.S. tech bubble burst, he bought control of troubled computer retailer CompUSA and assigned his eldest son, Carlos Slim Domit, 38, who before becoming chairman of family conglomerate Grupo Carso managed its retail holdings, to turn it around. But the hypercompetitive U.S. retail market proved a challenge: CompUSA posted a $4.5 million loss last year, despite an ongoing restructuring. "If things don't change for the worse in the U.S., CompUSA should show better results this year and the next," says Slim. An apparent plan to merge CompUSA with Circuit City Stores Inc. (CC) was shelved when the rival chain's shareholders rebuffed the Slims' offer of $8 a share -- an 18% premium over traded value, but well below Circuit City's $11 per share book value. "Slim would never engage in a hostile takeover," says one longtime acquaintance.

With the exception of CompUSA, Slim has stuck to purely financial investments in the U.S., confounding analysts who were certain he would try to take control of MCI -- or of Global Crossing or Saks. So, even while U.S. observers wonder if Slim has greater plans for MCI, those who've followed his strategy in Mexico and Latin America see the play for what it is: an investment aimed at wringing the best value out of shares that have already more than tripled his initial investment. Not bad for a three-year bet.

By Geri Smith in Mexico City, with Brian Grow in Atlanta and John Cady in New York


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