AT&T Inc. (T) will offload its long-held interest in Mexican telecommunication giant, America Movil S.A.B. de CV (AMX), to its majority shareholder Carlos Slim for around $5.6 billion. The announcement pushed up America Movil’s stock price by 5% on Friday trade on NYSE. The deal also marks the end to the 24-year long relationship between AT&T and America Movil.
AT&T presently holds 8.3% of market capitalization and 24% voting rights of America Movil. However, AT&T is divesting its stake to avoid conflict of interest with America Movil as the former currently seeks to get hold of satellite television operator DIRECTV (DTV) in a deal worth $48.5 billion.
Both DIRECTV and America Movil compete in the Latin American pay TV market. Of late, DIRECTV has been expanding its operations in Latin America and currently has 18 million customers. Post the stake sale by AT&T, the long-time allies will compete in the same market.
If AT&T receives the regulatory sanction to proceed with the DIRECTV deal, the telecom behemoth will hold a 41% stake in SKY Mexico, and will directly compete with America Movil as it plans to foray into the Mexican Pay-TV market.
Dallas-based AT&T will sell 5.7 billion class AA shares along with 73 million series L shares of America Movil to Carlos Slim’s holding company Inmobiliaria Carso. AT&T will initially receive $4.57 billion for the stake and another $1 billion within 60 days of the deal closure. Notably, AT&T has been reducing its stake in the Latin American operator since 2013 and has divested stocks worth over $1.5 billion.
Meanwhile, the transaction signifies that Carlos Slim, who owns about half of America Movil, retains the control. Additionally, the market value of the company remains stable which would have fallen if the shares were sold to the public.
However, the deal does not come as a surprise as the U.S. carrier had earlier announced its plans to fund the DIRECTV acquisition by selling its stake in America Movil. The carrier further plans to raise $2 billion by divesting its wireline operations in Connecticut to Frontier Communication Corp. (FTR) by the end of 2014. We believe, apart from providing cash, the transaction will reduce AT&T’s debt burden considerably, which is required to complete the DIRECTV transaction.
AT&T currently carries a Zacks Rank #3 (Hold).