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Mexico’s Slim bows to reform pressure

Mexican billionaire Carlos Slim at the opening ceremony for the Digital Village in Mexico City in April. Slim is planning to spend more in countries such as Brazil while placing bigger bets on industries like energy, as regulatory pressure in Mexico splinters his most prized asset, América Móvil.
América Móvil seeking to shed assets, as billionaire looks toward LatAm, Europe to diversify business

NEW YORK/MEXICO CITY — América Móvil, Latin America’s biggest telecoms company, will move quickly to put an “attractive” cross-section of the company up for sale as it sheds assets to escape tougher regulation of the phone and broadcasting markets in Mexico, billionaire owner Carlos Slim said.

The planned sale, announced on Tuesday, would cut the company’s dominant market share in Mexico and could generate billions of dollars. Slim, in his first interview since the announcement, also said the company would pursue expansion into Central and Eastern Europe through its investment in Telekom Austria and would likely sell the Mexican assets to a single buyer.

He also plans to put more money into energy, infrastructure and real estate across Latin America, particularly in Brazil, Colombia and Peru.

“Some people say that we are going to sell the low income customers, but nobody will buy that, we are thinking that we should do it in some transversal way...something that is attractive to buyers,” Slim said late on Thursday in an interview conducted in both English and Spanish.

The sale needs to be big enough to create space for a “competitor all the way, in all the country,” said the 74-year-old, who was the world’s richest man between 2010 and 2013.

Seated in his simple office in Mexico City where he had been reading an article about French economist and inequality expert Thomas Piketty, Slim declined to name a price for the sale, though he said it would happen soon.

“For us, six months isn’t fairly quickly, it’s slow,” said Slim, whose wealth, estimated by Forbes at nearly US$78 billion, ranks second in the world behind software pioneer Bill Gates.

Jumping from one subject to the next before circling back, and punctuating his talk with jokes and asides, Slim said that contrary to what many analysts believed, América Móvil did not plan to sell its cell phone towers under Tuesday’s announcement.

“It says they will be separated, not sold,” he said. ‘What’s being proposed is to open up the cell phone towers ... so they can be rented to anyone interested in renting towers.”

América Móvil, which had total revenue of US$60.5 billion last year, controls 70 percent of Mexico’s mobile phone market and well over half of its fixed line and internet business. It’s a prime target of President Enrique Peña Nieto’s drive to spur competition in key industries dominated by a few families.

Diversification across latin America

While América Móvil will be reducing dependence on its home market, the world‘’s second-richest man has been diversifying his business beyond Mexico and telecommunications for years with holdings in banking, mining and construction. Now, Slim said he plans to put more money into energy, infrastructure and real estate across Latin America, particularly in Brazil, Colombia and Peru. Telecommunications also remains attractive outside of Mexico, he said.

A believer in free trade and the private and public sectors working alongside for the development of infrastructure, Slim often promotes Latin America as a good place to invest as middle classes emerge and speed up the economic growth. He also touts the benefits of shorter work weeks, which aids employment levels, and later retirement ages to reduce the strain on pension funds and government support.

América Móvil has also expanded, with operations in 17 other countries, from the United States to Chile. It also holds stakes in two European phone carriers, Royal KPN and Telekom Austria, in which it extended a tender offer for outstanding shares that expired Thursday. With about 60 percent of América Móvil’s sales coming from outside of Mexico today, up from 29 percent in 2002, Slim‘s fortune is less dependent on his home country than it used to be.

Brazil potential

US company AT&T has been flagged as one potential buyer for the América Móvil assets but Slim said the field was open.

He said firms with the financial muscle to compete with América Móvil on its home soil were unlikely to be Mexican. The only other major player in Mexico’s cell phone market is Spain’s Telefónica with a share of about 20 percent. He said a sale to a single company would make sense. Both AT&T and Telefónica declined to comment on América Móvil’s plans.

Telefónica also competes with Slim in Latin America’s largest economy Brazil, where it leads the mobile market through its Vivo unit. América Móvil’s local brand Claro has a quarter of the market, and Slim said it has room to grow.

Slim may have an opportunity in Brazil if a potential mobile consolidation occurs involving Telecom Italia’s TIM, the number two mobile provider. Regulators in December ordered Telefónica to resolve its position as owner of Vivo and part owner of TIM via its stake in Telecom Italia.

To comply, Telefónica wants to break up TIM and divide its assets and network between itself and the other two mobile firms in Brazil, América Móvil, and Oi, sources told reporters in May.

Asked if he would be interested in TIM assets, Slim said:

“Let’s not speculate about possibilities. América Móvil’s priority is organic growth. But if there are opportunities or circumstances to consolidate something that’s good for the development of the company, like any other company, it does it.”

European venture

Slim had been anticipating tougher regulations at home and in 2013 swooped for control of former state-owned Dutch telecoms firm KPN. The bid failed, saddling América Móvil with what is still a multi-million dollar paper loss.

But KPN was a valuable lesson for the Mexican company, and a subsequent venture into Europe to take a majority stake in Telekom Austria came to fruition in April.

Slim hinted that América Móvil could withdraw from KPN once the price was right, drawing a clear distinction between its respective holdings in the Netherlands and in Austria.

Whereas Telekom Austria was a long-term strategic asset co-managed by América Móvil, KPN was an investment, he said.

América Móvil aims to use Austria as a base to push into Central and Eastern Europe, a region that has “plenty of mileage left in it”, Slim said.

According to two people familiar with the matter, Slim has also looked at purchasing a large stake in another former-state owned phone business, Turk Telekom.

For now, there looks to be no shortage of business at home.

The opening of Mexico’s oil and gas industry to private capital and Peña Nieto’s plan to line up US$592.56 billion worth of public and private investment in infrastructure by 2018 could be a major windfall for Slim.

Slim’s Grupo Carso has big interests in construction, while he can tap into the energy sector through companies like Bronco Drilling MX and platform-maker Swecomex.

— Herald with Reuters, Bloomberg

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