América Móvil’s and AT&T Partnership Over Just Like That
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Vodafone wasn’t the only company to cringe at the news of AT&T’s acquisition of cable company DirecTV. América Móvil, the Mexican telecom giant owned by billionaire Carlos Slim, has long been a partner with AT&T, with ties that stretch back to the early 90s. That is, until recently. Due to regulatory issues, AT&T’s merger means they will have to relinquish a $6 billion stake in América Móvil, which amounts to 8.4% of the company’s shares. AT&T members Michael Voila and Jeffery Scott McElfresh also stepped down from América Móvil’s board of directors.
So what’s Carlos Slim going to do now? It’s anybody’s guess at this point. Tracfone, one of AMX’s brands, relies heavily on AT&T as a key reseller as well as being a virtual operator itself. Currently, AMX operates Tracfone in the US and resells access to AT&T’s network.
Once the news broke on Monday, América Móvil’s stock was down 4.2%, dropping down to $19.55, their biggest decline since August of last year, before recovering and finally reaching above $20.00 Thursday.
AMX is also in a position where they can’t repurchase those shares, as the move would boost the company’s net debt to twice its annual earnings before interest, taxes, depreciation and amortization. The ratio sat at 1.6 last quarter and the plan is to reduce that to 1.5 moving forward. That means that the most likely scenario is that they will sell the shares in a public offering.
According to Carlos de Legarrata, Carlos Slim could buy the shares directly to increase his own private stake in the company he founded. “It would send a positive message, of his trust in the business and the opportunities he’s seeing,” Legarreta said. At this point, though, it’s hard to know if even they know what they’re going to do.
Another thing América Móvil has to worry about now is that AT&T’s merger not only forces them to relinquish their partnership, but also turns them into competitors. And it seems as if the timing is perfect. The Mexican government has been rolling out a long list of antitrust measures to reduce AMX’s 70% control of the country’s mobile business, as well as their 80% control of the landline business.
The new measures are sure to make it possible for AT&T to make its own inroads into the Mexican market. By that same token, though, it wouldn’t be a surprise to see AMX try to bolster its own presence in the United States. Tracfone Wireless, for example, already has 25.5 million subscribers. Kevin Smithen, an analyst for Macquarie, said “"I think we will see that América Móvil is now free to enter the U.S. We may see it try to partner with one of the other players be it Sprint, T-Mobile or Dish.”
AMX is also moving aggressively to reach a majority in Telekom Austria, although the Telekom’s board remains neutral toward AMX’s proposal. The next few weeks will tell how things will play out, but overall, América Móvil has lost some in losing its partnership with AT&T, but it should also gain some as it moves on to new opportunities.