The Mexican telecom giant, America Movil (AMX) plans to acquire the entire ownership of its fixed-line operation Telefonos de Mexico SAB (TMX) or Telmex in Mexico. Currently, America Movil is the biggest shareholder of Telmex owning 59.4% stake. The company is now looking forward to buying the remaining interest.
Concurrent with the acquisition plan, America Movil launched a bid offer of $6.5 billion, which equates to MXN$10.50 (approximately 90 cents) per share of Telmex. The valuation reflects an 11% premium over Telmex’s last traded price of MXN$9.49.
The bid offer has prompted one of the major stakeholders, AT&T Inc. (T) to sell its 8.5% stakes in Telmex. As compensation, AT&T will receive a hefty $1.4 billion, which represents profit of approximately 1% to 3% per share on sale. After the Telmex acquisition is finally agreed upon, America Movil plans to delist it from various markets in which it currently trades.
Given the declining performance of Telmex due to the falling numbers of fixed line subscribers, America Movil plans to take over the company in an effort to consolidate its wireless, fixed-line, and Internet services in Mexico. The strategy will not only aid the declining assets in the fixed-line business but will also provide an advantage over major rivals like Grupo Televisa (TV).
Apart from the Mexican market, America Movil also targets the Brazilian telecom market, which remains a core competitive area, next to Mexico. To consolidate its business in the Brazilian market, the company aims to purchase 20% stock of StarOne S.A (a satellite services provider in Brazil) by the third quarter of 2011.
The company already holds 80% of the stock through its Brazilian subsidiary Embratel. Additionally, the company has also acquired Pay TV firm Net Servicos, the largest multi-service cable company in Latin America.
Currently, we maintain a long-term Neutral recommendation on America Movil supported by a Zacks #3 Rank (Hold).
AMER MOVIL-ADR (AMX): Free Stock Analysis Report
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