Telefonica to Buy Motorola Mexican Wireless Units
(Update4)
By Andrew Davis
Madrid, Oct. 4 (Bloomberg) -- Telefonica SA, Spain's largest telecommunications
company, said it's close to buying some of Motorola Inc.'s Mexican
wireless-phone assets to gain 1 million subscribers in Latin America's
second-biggest country.
Spanish financial newspaper Cinco Dias said Telefonica will pay about 3 billion
euros ($2.6 billion). Telefonica didn't give a price in a statement to stock market
regulators. Motorola is in talks with ``several parties'' about buying the company's
foreign wireless assets, said Albert Brashear, a spokesman.
Telefonica has spent more than 30 billion euros buying phone assets in Latin
America to become the biggest foreign phone company in the region. The
purchase would come weeks before it sells shares of its wireless unit, which has
more than a third of its 20 million customers in Latin America. Mexico is the
biggest hole in Telefonica Moviles SA's network in the region.
``Mexico is a big market that Telefonica needs to be in,'' said Jose Manuel
Menendez, a fund manager at Gesduero, a unit of Caja Duero, which manages
90 billion pesetas ($473 million) of equities and debt. ``Its a good strategic move.''
Telefonica told regulators the company hopes to reach an agreement with
Motorola within two weeks. That means the transaction would be in place before
the Telefonica Moviles IPO, due in November. The sale of at least 10 percent of
Telefonica Moviles may value the unit at more than 60 billion euros, analysts
said.
Motorola
``We have publicly announced a plan to spin off network management group
assets, but there are several parties who have expressed interest,'' said Motorola
spokeswoman Una Kent, who couldn't confirm if Motorola had signed a
preliminary agreement with Telefonica. Other Motorola spokesmen declined to
comment.
The Madrid-based company's shares fell 0.36 euro to 23.44, their first decline in
four days as telephone company shares fell across Europe. Motorola, based in
Schaumburg, Illinois, rose 1.94 to 29.38 in early afternoon trading.
Wireless use is surging in Mexico, a country of more than 97 million people. The
number of mobile phone users has doubled in the past 12 months to more than
10 million. Motorola is the third- biggest wireless company in Mexico, and its five
units have more than 1 million clients.
The transaction would be the first since Cesar Alierta took over as chairman of
Telefonica and Fernando Abril-Martorell as chief executive after Juan Villalonga
resigned in July.
Mexico
``They have been trying to get into Mexico for a long time, and if the press is
correct, the price is attractive,'' said Glen Spencer-Chapman, an analyst at
Ibersecurities in Madrid, who recommends buying Telefonica shares.
Ibersecurities is not part of the bank group marketing the Telefonica Moviles
shares.
Based on the reported price, Madrid-based Telefonica would be paying about
2,500 euros per customer. That compares with 3,000 euros to 4,207 euros
typically paid in Europe, Spencer-Chapman said. Even with a risk premium for
investing in Latin America, the price is cheap, he said.
In Mexico, Motorola controls 100 percent of Cedetel, Baja Celular and Norcel and
90 percent of Movitel in the north, analysts said. It holds about 22 percent of
Portatel in the south, which includes the tourist region of Cancun.
Motorola said in June that it would form a new company for its foreign wireless
assets, which include holdings in Mexico, Brazil, Israel, Egypt, Hong Kong and
Pakistan. The company, called Propel Inc., would then have an initial public
offering.
If selling the assets is more attractive, ``the IPO would not go forward,'' Motorola's
Brashear said.
The Mexican units together are Propel's largest holding in a single country based
on percentage of the cellular customers, according to a company filing with the
U.S. Securities and Exchange Commission.
Sale Talks
``I like that they are saying they would sell if it made more sense for
shareholders,'' said David Brady, senior portfolio manager at Stein Roe &
Farnham Inc., which owns about 2 million Motorola shares. ``This shows there
are a lot of under-appreciated assets in the company.''
Ed Snyder, a Chase H&Q analyst, said he didn't know if $2.6 billion was a fair
price for the Mexican units. ``But if they sell the assets or do the IPO, either way
would be a plus for the company, since it would cease to be a distraction,'' he
said.
Last year, Motorola held talks with Mexico's second-largest wireless company
Grupo Iusacell SA for a potential sale of its assets in the country. The talks
broke off after the companies failed to agree on a price.
Motorola's wireless subsidiaries in Mexico offer telephone services mainly in nine
northern Mexican states, which cover the cities of Monterrey, Mexico's
second-largest metropolitan area, and the U.S.-Mexico border cities of Tijuana
and Ciudad Juarez. |
