Carlos Slim, chairman of the Mexican telecom giant, America Movil (AMX - Analyst Report) and the world’s richest man has raised his stakes in America Movil. Slim has increased his class L shares holding in the company to 14.4% from 13.7% owned previously. Given a significant drop in the company’s market value due to regulatory changes, increasing the stakes in the company at this point remains a strategic move by Slim as it strengthens his ownership.
In addition, Slim’s move is also suggestive of the significant growth prospects within America Movil. The market may react positively to this news and even help the company to bounce back after a deep plunge in share value.
In an effort to stall share price decline, America Movil increased its share repurchase fund by 40 billion pesos ($3.2 billion). The increase in share repurchase also helped the company to safeguard its market value, which was affected by the proposed regulatory bill in Mexico. In Mar 2013, Mexican President Enrique Pena Nieto proposed a new bill highlighting several measures to reform its telecom and television industry. The main objective of this bill is to bring more uniformity and transparency into the sector and curb concentration of power that lies with predominant players, which dictate market behavior.
However, the proposal has struck the Mexican telecom and television industry on a discordant note as it unfavorably targets giant corporations – America Movil and Grupo Televisa S.A. (TV - Analyst Report). The proposal stresses on the implementation of the asymmetric regulations that faced severe condemnation by America Movil.
Per the proposal, predominant players that control the majority of market shares like America Movil, will have to pay higher mobile termination rates (MTRs) to smaller peers while receive lesser amounts from them for network interconnection. Through Telcel and Telmex, America Movil commands about 70% market share, while the Spanish wireless operator Telefonica S.A. (TEF - Analyst Report) controls nearly 22% of the Mexican market share.
Following this ruling, America Movil experienced a significant decline in its share price that swept away billions of dollars in its market valuation. Since then, the company has aggressively followed a share repurchase policy to mend the loss.
However, we believe share buyback and stake increases by management and shareholders can be a short-term remedy to improve market position. But America Movil still has to pass through the litmus test when the new telecom bill comes into action. How the company survives in the new regulatory environment of Mexico amid cut-throat competition from players like Telefonica, Grupo Televisa and NII Holdings Inc. is something to watch out for.
America Movil has a Zacks Rank #3, implying a Hold rating.