America Movil to Spin Off Mexico Towers Amid Breakup Plans

Jul 22, 2014 4:28 pm ET

(Updates with closing shares in fourth paragraph.)

July 22 (Bloomberg) -- America Movil SAB is planning a spinoff of its wireless towers in Mexico as the company studies how to break apart its wireless and landline phone operations in the country, where tougher regulations are cutting into profits.

A spinoff will better reflect the value of the towers, which can be rented to competitors, Chief Executive Officer Daniel Hajj said today on a conference call. The company continues to work on a breakup plan to present to Mexico’s telecommunications regulator, which can revoke penalties against the carrier if its market share falls below 50 percent.

The stricter rules against America Movil, which has 70 percent of Mexico’s wireless accounts and 80 percent of its landlines, include eliminating some fees and forcing the company to share infrastructure. The regulations cut into the second- quarter profit of the Mexican unit, which lost 2 million subscribers, though improvements in countries such as Brazil helped the company beat analysts’ estimates for earnings and sales.

America Movil shares climbed 2.1 percent to close at 15.38 pesos in Mexico City. The telecommunications giant has led gains in Mexico’s benchmark IPC index this month as analysts cheer the company’s decision to sell assets in Mexico, generating proceeds to potentially invest in faster-growing markets.

The mobile-phone carrier, controlled by billionaire Carlos Slim, is studying whether its breakup should create a new regional or national company, Hajj said. The goal is to attract an acquirer that would invest in Mexico and create new competition, satisfying the regulator’s requirements, he said.

No Sale

America Movil had previously said it would separate the towers from the rest of the business, leading to speculation that it would sell the assets entirely. Hajj said today that America Movil is also considering options for its towers elsewhere in Latin America, though the board has only decided on the Mexican towers thus far.

America Movil has about 28,000 towers in Mexico, according to estimates from Barclays Plc. If the company had sold the towers, it could have raised as much as $8 billion, based on comparable transactions, Amir Rozwadowski, a Barclays analyst, said in a note earlier this month.

A spinoff makes more sense because America Movil’s towers are on top of a significant portfolio of real estate properties owned by Slim, Gregorio Tomassi, an analyst at Banco Itau BBA, said in a July note. The billionaire, who with his family owns a majority of America Movil shares, could spin off the towers into a real estate investment trust, which would be profitable by leasing to competitors, he said.

Profit Rises

America Movil’s second-quarter profit rose 2.4 percent from a year earlier to 66.6 billion pesos ($5.1 billion), leaving out interest, taxes, depreciation and amortization. That compared with the average estimate of 65.8 billion pesos of nine analysts compiled by Bloomberg.

“AMX’s results came as a positive surprise,” Itau’s Tomassi said in a note today, referring to the company by its ticker symbol. “Brazil continues to deliver solid Ebitda-margin expansion.”

Sanctions Remain

Net income rose to 18.8 billion pesos, or 27 centavos a share, from 14.2 billion pesos, or 19 centavos, a year earlier. Sales climbed 4 percent to 202.6 billion pesos, exceeding the average estimate of 198.7 billion pesos.

Fee cuts already put in place by Mexico’s telecommunications regulator reduced the local unit’s profit margin to 43.6 percent, down 0.9 percentage point from a year earlier. Mexican wireless subscriptions fell to 71.3 million, with mobile voice revenue falling 8.7 percent on lower fees due to regulations, America Movil said.

While the average monthly phone bill in Mexico dropped by 1.1 percent to 169 pesos, mobile-data demand helped push total wireless service revenue up 0.4 percent from a year earlier in Mexico.

The regulatory impact could have been worse, Tomassi said. Ebitda in Mexico dropped 1.8 percent to 30.4 billion pesos, compared with his estimate for a 5.7 percent decline. America Movil has to abide by the restrictions until the regulator approves its plan to reduce market share.

Brazil Expansion

Profit margins climbed 2.2 percentage points from a year earlier to 25.5 percent in Brazil, which now represents about 25.8 percent of America Movil’s wireless customers, compared with Mexico’s 26.7 percent. Earnings in Brazil were also aided by demand for TV service.

America Movil lost a total of about 5.3 million wireless subscribers in the second quarter. The company said its Central America and Caribbean unit, which operates in countries including Panama, Guatemala and Puerto Rico, lost about 3.2 million subscribers, without specifying the reason.

To further diversify beyond its home market, America Movil has been acquiring assets in Europe. Last week, Slim’s company said it would pay 743 million euros ($1 billion) to boost its stake in Telekom Austria AG to 50.8 percent, concluding a more than two-year quest to operate in Europe. Under a syndicate agreement between America Movil and Austria’s state holding company, they are committed to increase Telekom Austria’s capital by 1 billion euros.

America Movil cut its stake in Dutch phone carrier Royal KPN NV to 22.6 percent, the Mexican company said today, down from 24.8 percent in a filing in April. Chief Financial Officer Carlos Garcia-Moreno has said America Movil intends to retain enough of a stake to keep two board seats at KPN.

Losses from the sale of KPN shares, which have sunk about 39 percent since America Movil first disclosed a stake in 2012, totaled 3.7 billion pesos in the quarter.