AT&T has made two acquisitions this year in its expansion into Mexico -- neither with billionaire Carlos Slim, who dominates the country’s communications industry. Instead, AT&T has committed more than $50 billion to buying Mexican wireless carrier Grupo Iusacell SA and DirecTV, which has a stake in satellite-TV service Sky Mexico.
That’s left Slim, a former ally of AT&T, in limbo because he needs to divest a large portion of America Movil SAB (AMX)’s assets in Mexico to reduce its market share below 50 percent and avoid profit-reducing penalties. AT&T may be Slim’s best hope for a buyer as the
Dallas-based company is trying to bundle wireless, TV and broadband services south of the U.S. border. The catch is that the Iusacell business AT&T is buying benefits as long as America Movil faces penalties. Dragging out that punishment also may make for a tougher -- and maybe cheaper -- sale for Slim.
“AT&T is in no rush to buy America Movil’s assets in the short term,” Gregorio Tomassi, an analyst at Banco Itau BBA, said in a phone interview from Mexico City. “America Movil is seeing the situation is becoming more difficult than they had initially thought.”
AT&T Inc. Chief Executive Officer Randall Stephenson initially set his sights on Europe... Read More
SoftBank Out
America Movil originally contacted potential suitors including AT&T, SoftBank Corp. (9984) and China Mobile Ltd. as it prepared to sell landline and wireless assets worth about $17.5 billion, people with knowledge of the matter said in September. Since then, Tokyo-based SoftBank has dropped out of the process, according to other people familiar with the matter, who asked not to be named because the decision was private.Mariko Osada, a spokeswoman for SoftBank, declined to comment, as did a press official for America Movil, which has a market value of $77 billion.
Fletcher Cook, an AT&T spokesman, declined to comment on the company’s expansion strategy in Mexico.
AT&T’s presence in Mexico since announcing the purchase of Iusacell on Nov. 7 reduces the appetite of other foreign buyers to enter the market and improves AT&T’s negotiating power with America Movil, Tomassi said.
“AT&T has the clearest way to create synergies,” Tomassi said. “No other operator interested in coming has the level of synergies, cross-border or inside of Mexico, as AT&T.”
AT&T Expansion
The $176 billion U.S. phone giant had been searching for new businesses and new regions for expansion amid increased competition and slowing wireless growth at home. Chief Executive Officer Randall Stephenson initially set his sights on Europe but shifted back to the Americas after Comcast Corp. announced plans to buy Time Warner Cable Inc.
Grupo Iusacell SA customer service center in Mexico City. AT&T has committed more than... Read More
Mexico helped open the door to competitors earlier this year when it signed a telecommunications overhaul into law. The new rules force America Movil, which controls seven out of 10 mobile-phone users in the country, to cut its fees and share infrastructure with its competitors.
Even without the legislation, Mexico’s proximity, economic growth potential and increasing population make it a prime market for AT&T to expand its TV, wireless and Internet service business.
Balance Sheet
AT&T has the means to buy America Movil’s assets and extend its reach further in Mexico. Holding off on another deal, for now at least, might be better for its balance sheet.Its shopping cart is already filling fast. On top of DirecTV and Iusacell, AT&T is one of the top bidders in the Federal Communications Commission’s airwave auction, which has already surpassed $41 billion. Meantime, its A credit rating has been in jeopardy since May when Fitch Ratings put it under review for downgrade after the DirecTV deal was announced.
AT&T had about $2.5 billion in cash and cash equivalents as of September and has been trimming costs and selling assets this year. Last month, the phone company said it was cutting its projected 2015 capital spending budget by 14 percent to $18 billion.
For AT&T to keep up with its network expansion in the U.S., continue paying shareholders the 10th highest dividend yield in the Standard & Poor’s 500 Index and build businesses in growth markets, it will need more money. While borrowing is an option, another deal would only exacerbate the situation, putting further pressure on its credit standing.
No Need
AT&T’s Stephenson has said that the timing and structure of America Movil’s breakup isn’t clear yet and that his phone company would be just fine without Slim’s assets.“We believe we have found a path here that gets us a very nice, scalable growth platform without the America Movil assets,” Stephenson said at an investor conference last month. “If things materialize over time and those look attractive, you’d obviously have to look at them. But we really don’t need the America Movil assets to be successful.”
A deal to hive off some of America Movil’s assets was always going to be a long, complicated process, according to Jim Kahan, a former AT&T strategy chief.
“Divestitures like this aren’t a simple thing to do,” said Kahan, a senior adviser with TAP Advisors LLC, a boutique investment-banking firm. “My guess is once the Iusacell deal closes, AT&T is going to to want to start building that business. My gut reaction is that they can start even without America Movil.”
Breathing Room
AT&T has some breathing room. It’s under no great pressure to purchase America Movil’s assets, said Dave Novosel, an analyst at Gimme Credit LLC.“I don’t think there are a lot of players that are in a position to buy the America Movil assets, so I don’t think AT&T has much competition,” Novosel said in a phone interview. “Meanwhile, AT&T already has two acquisitions going at the same time, so there’s reason to think they have the flexibility to wait.”
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