America Movil’s European expansion
Outside North and South America, América Móvil is a name that many won’t be familiar with but that’s about to change. Owned by Carlos Slim Helu, the richest person in the world according to Forbes magazine; it was founded only in 2000 and has quickly become the fifth largest mobile network operator in the world. This year through a series of targeted investments it’s now looking to expand beyond its American markets and move into the Europe which if successful will have major repercussions on both current and potential competitors as well on European consumers.
The first of these investments is an attempt to acquire a substantial stake in the Dutch mobile network operator Royal KPN, where América Móvil had previously acquired a 4.8% stake. An initial unsolicited offer of 2.6 billion Euros (US $3.3 billion) was made in May which would have increased America Movil’s stake to 27.7% and position it in place for a potential takeover. However this offer only valued KPN at 8 Euros a share and was rejected outright by the board on the grounds that it “substantially” undervalued the company.
The response from the board was completely justified in my view as despite KPN fighting falling revenue and profit due to a domestic slowdown caused by the European economic crisis, it still has significant operations in five European countries including Spain, the home of Telefónica, América Móvil main South American rival, and is currently trading at 7.92 Euros a share. Despite their rebuttal América Móvil has managed to acquire some shares and currently owns 8.1% of KPN as of a June 13 filing.
Undeterred by their failure to secure a major stake in KPN, America Movil has since invested in Austrian mobile network operator Telekom Austria AG (TKA) and has acquired a 21% stake from investor Ronny Pecik for 9.50 Euros a share; with 5% purchased now and the remaining 16% available later in the year subject to regulatory approval.
These investments have gotten investors excited about América Móvil and in an attempt to cool their excitement America Movil’s CFO Garcia-Moreno has stated that “We are not looking at anything else, we have decided to limit ourselves to what we can do, given our credit ratings. We want to hold onto our credit ratings and that imposes very clear, very explicit limitations in terms of how much we can lever up and we do not want to affect the distributions we make to our own shareholders as a consequence of this.”
Like many, I don’t see this being the last from América Móvil in its European expansion and that’s a good thing. While América Móvil will benefit from selling to consumers with greater disposable income to spend on mobiles services than they do in South America; investors and consumers will benefit from a stronger market. The best example of this is Wal-Mart’s investment in British retailer Asda in 1999, which forced domestic rivals to improve their performance and increasing the range of products and services they offered. The net result was recording breaking revenues and profits for the retailers and a better service and more competitive prices for consumers. I see the same thing
happening in the mobile market.