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America Movil (AMX) to Boost Chile Operations With Strategic Tie-Up

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In a concerted effort to solidify its position in the booming 5G market, Carlos Slim-controlled America Movil, S.A.B. de C.V. AMX recently collaborated with telecom services provider, Liberty Latin America Ltd. LILA, to merge their respective Chilean business operations — Claro Chile and VTR — in a 50:50 joint venture (JV). The move is not subject to shareholder approval of either of the companies.

The proposed agreement aims to augment fixed fiber footprint and create product diversification on the back of a robust capital structure, thereby generating lucrative revenues via cross-selling opportunities and scale. Post the announcement, shares of America Movil and Liberty Latin America (“LLA”) jumped 0.4% and 3.6% to close at $17.63 and $12.83, respectively, thereby infusing positive investor sentiments.

Denver, CO-based LLA is a leading telecommunications company that functions in more than 20 countries. Its subsidiary, VTR, caters to nearly 3 million customers and offers avant-garde consumer fixed products, such as broadband and Pay TV services nationwide. America Movil’s unit, Claro Chile, boasts a solid base of more than 6.5 million mobile customers and is known for providing broadband Internet and telephony services.

The JV will bring experience in the integration and execution of identified synergies related to in-country consolidations while enabling the entities to be at the forefront of 5G mobile delivery. Per the transaction, the Mexico-based telco will contribute net debt of $0.4 billion and LLA $1.5 billion, with an additional balancing payment of $0.1 billion to America Movil.

The consolidated operations will generate estimated run-rate synergies of more than $180 million, with 80% of savings anticipated to be realized within three years post the completion of the JV. The deal does not involve any telecommunication towers owned indirectly by America Movil in Chile. Benefits arising from this JV primarily include operating efficiencies and cost-reduction.

America Movil’s shares have rallied 44% against the industry’s decline of 4.3% in the past year.

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Thanks to synergy realization and organic growth, the JV targets a long-term net leverage ratio of 2.8 to 3.5 EBITDA. Further, its leadership, which will comprise eight people (four each from American Movil and LLA) is expected to be finalized before the closing of the agreement.

Driven by these significant investments, the consolidated operations are likely to benefit more than 6 million households with major fiber-to-the-home deployments by 2025. This is likely to further strengthen both America Movil and LLA’s position in the competitive telecom industry. The transaction is expected to close in the second half of 2022 and is subject to certain regulatory approvals.

It is worth mentioning that America Movil is Mexico’s prime mobile network operator with an enormous portfolio of international subscribers across 25 countries. With a steady increase in subscriber base, it has strengthened its position in core markets and is one of the leading providers of integrated telecommunications services in Latin America and the Caribbean.

The company aims to grow in other parts of the world by continuing to expand subscriber base through the development of existing businesses and strategic acquisitions. Also, the company is focused on its cost-cutting program, particularly in Latin America, which is expected to reduce its total operating expenses.

Zacks Rank & Stocks to Consider

America Movil currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the industry are KT Corporation KT and Vodafone Group Plc VOD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

KT Corporation has a long-term earnings growth expectation of 9.8%.

Vodafone has a long-term earnings growth expectation of 3%.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

America Movil, S.A.B. de C.V. (AMX) : Free Stock Analysis Report

Vodafone Group PLC (VOD): Free Stock Analysis Report

KT Corporation (KT) : Free Stock Analysis Report

Liberty Latin America Ltd. (LILA) : Free Stock Analysis Report

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