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 Business News | November 2007 
Telmex to Spin Off International Business
 PriMetrica
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Telmex has announced that it will spin off its international operations and its Yellow Pages business to form a new stand alone company known as Telmex Internacional. The proposed spin-off is expected to allow the resultant companies - Telmex Internacional and Telmex - to operate more efficiently and improve their respective competitive positions.
Telmex’s international businesses include fixed line operators, cable TV companies and internet service providers in Brazil, Argentina, Chile, Colombia, Ecuador and Peru. Together they account for about 30% of Telmex's annual revenues. The new Telmex Internacional will be floated on the Mexican and US stock markets.
It is not the first time the Mexican company’s owner Carlos Slim has separated a smaller but rapidly expanding unit from a slow-growing parent company. In 2000 he spun off Telmex's wireless operations to create America Movil, which has quickly grown to become one of Latin America's largest telecoms companies.
As part of the operational reshuffle, Telmex also announced plans to create a new division with responsibility for fixed line services in rural areas. As of September 2007 Telmex claimed a total of 18.2 million main lines in service in Mexico, with a presence in more than 22,880 communities. Of these lines, approximately 9.8 million were in areas served by other telecoms companies and thus deemed ‘competitive’. However 8.3 million lines are located in communities in which no competition exists: according to Telmex customers from these areas generate annual revenues of approximately MXP17.5 billion (USD1.61 billion), EBITDA of MXP3 billion and an operating loss of MXP1.98 billion. As a result, Telmex has decided to separate the operation and marketing of these rural areas in order to address ‘their particular needs and monitor their development’.
Telmex Stock Surges 13 Percent on Plans for Spinoff
William Freebairn and Adriana Arai - Bloomberg
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Billionaire Carlos Slim's Telefonos de Mexico SAB, the largest fixed-line telephone carrier in Mexico, rose the most in nine years on a plan to spin off its faster- growing operations elsewhere in Latin America.
The shares rose 1.63 pesos, or 8.8 percent, to 20.12 pesos in Mexico City trading as of 1:19 p.m. New York time. Earlier Telmex traded at 20.95 pesos, a 13 percent gain, the biggest since September 1998.
Slim, 67, is giving investors a chance to bet on a new company with units in Brazil, Colombia, Argentina, Chile, Ecuador and Peru as sales growth in Mexico stalls. The spinoff plan mimics the 2000 deal that turned Telmex's mobile-phone unit into America Movil SAB. Today, America Movil's $105 billion market value is more than three times Telmex's.
"Separately the companies are worth more than Telmex now," said Gerardo Lozoya, a partner at Investra Consultores SA, which manages about $750 million in Monterrey, Mexico. "The international part is small and it was hard for investors to figure out what the strategy was."
Citigroup Inc. analyst Patrick Grenham upgraded shares to "buy" from "hold." UBS analyst Carlos Sequeira upgraded shares to "neutral" from "sell."
In Mexico, where Telmex has 90 percent of the nation's lines and gets 80 percent of profit, sales growth has stalled since 2001. Mexican regulators plan to start a probe by the end of 2007 to identify markets where Telmex's market share is large enough that special regulation may be needed to encourage competition.
Antitrust Pressure
The spinoff may insulate the non-Mexican part of the business from increasing antitrust pressure, wrote Manuel Jimenez Zaldivar, an analyst at IXE Grupo Financiero SA in Mexico City.
The new company, called Telmex International, will trade in Mexico and the U.S. Telmex said yesterday details on how many shares of Telmex International its existing shareholders will get will be announced at a later date it didn't specify.
"The intention of this spinoff was to show the value of the international operations," analyst Martin Lara of Vector Casa de Bolsa wrote in a report e-mailed today.
To contact the reporters on this story: William Freebairn in Mexico City wfreebairn@bloomberg.net Adriana Arai in Mexico City at aarai1@bloomberg.net |
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