Billionaire Carlos Slim moved on Monday to bring his whole telecommunications empire under one roof when America Movil launched an offer to buy the rest of fixed-line phone subsidiary Telefonos de Mexico.
America Movil already owns almost 60 percent of Telmex after a consolidation last year, and is now seeking to take the remaining 40 percent in a deal worth about $6.5 billion based on the current market capitalization of Telmex.
The company said it has ample resources to finance the Telmex deal.
We had a good cash position and we also have some credit lines, Chief Financial Officer Carlos Garcia Moreno told Reuters. We are in a very comfortable position from a liquidity perspective.
The deal is subject to various regulatory approvals, the company said in a statement, and the closing date is not known.
Telmex shares ended up 7.69 percent at 10.22 pesos on the news that America Movil will pay a premium for the stock, while shares in America Movil -- which have been battered this year by a battle with regulators -- sank almost 2 percent.
Slim, the world's richest man, has been hit by competition probes into his phone companies over the rates he charges competitors to use his network. One of the biggest blows came in May, when the government crushed Telmex's long-coveted bid to offer television services in Mexico.
The move comes just over a year after America Movil acquired Telmex's international unit and increased its stake in Telmex itself as the mobile phone giant swallowed the underperforming companies. America Movil said it would delist Telmex if the bid was successful.
I think the primary rationale for doing this is that Telmex as a stock has had very little in the way of equity or institutional interest for a while, said analyst Christopher King with Stifel Nicolaus.
He said he did not see any operational changes or issues from the deal, although delisting Telmex shares or shutting down investor relations and corporate finance within the company would cut costs.
Shortly after the announcement, big shareholder AT&T said it would sell its Telmex shares and said the America Movil offer would value its stake at around $1.37 billion.
According to company data from the end of February, AT&T held 19.4 percent of Telmex's AA shares.
Thomson Reuters data show BlackRock Inc, the world's largest money manager, holds a 1.6 percent stake of L shares and Vanguard Group another 1.2 percent of L shares.
America Movil, which had about $7.5 billion in cash and securities at the end of June, said it will pay 10.50 pesos ($0.90) a share for Telmex, a premium of 11.1 percent to its share price over the last 30 days.
BUMPS ON THE ROAD
Like other fixed-line phone operators, Telmex has been struggling amid competition from Internet-based call providers and mobile phone companies, although its Internet business keeps growing quarter after quarter.
Analyst Valeria Romo from brokerage Monex said the move would be negative for America Movil in the short term but more positive in the future.
I think it's negative news for America Movil, which already owned 59 percent of Telmex ... America Movil would absorb the whole loss that Telmex carries, she said.
In the long term being the full owner of Telmex will mean it can exploit 4G technology.
Telmex reported a lower second-quarter profit last month, hurt by lower revenues as call traffic declined.
Just recently, Telmex's Chief Financial Officer Adolfo Cerezo announced his retirement from the company after a 33 year-long career with the Slim giant.
(Reporting by Elinor Comlay and Cyntia Barrera Diaz, editing by Bernard Orr, Phil Berlowitz)