After making a play to increase its share in European operator KPN, America Movil said its U.S.-based subsidiary Tracfone Wireless has entered into an agreement to acquire mobile virtual network operator Simple Mobile, which offers SIM-based services using T-Mobile USA’s network.
The moves show the Latin America-based wireless carrier group controlled by Mexican Carlos Slim is looking to boost its presence outside its home region. It is using Simple Mobile to increase its footprint in the U.S. market as well as KPN to expand operations in Europe.
“This is a small, yet positive move for [America Movil]. As I believe the company’s historical accretive acquisitions are now harder to find in Latin America, as such, the company has decided to expand — in a minority mode — to Europe where the valuation of such offer looks positive for [America Movil] as a sole investment, or even — should the company later decide to move forward — as a majority stake in a different region, thus, diversifying its risks, while increasing its global presence,” GBM Research’s Andres Medina-Mora said to RCR Wireless News.
By expanding its operations, America Movil can partially diluting the Latin American risks, but some analysts point that it is important to keep investing in the region, where Carlos Slim’s group faces increased competition with Spain’s Telefonica.
“Regarding challenges in Latin America, I believe the company’s challenges will remain, however, its network enhancements and investments should position [America Movil] as one of the best structured companies in the region to reap the benefits of the coming data surge,” added Medina-Mora.
Indeed, Macquarie Capital noted it would be better if [America Movil] keeps its attention on the Latam region. “Slim is investing in a dividend yield of 11.25%, which we expect to fall to 7% based on the offer price and Macquarie’s estimates. While this may yet turn out to be a savvy financial investment, we would have preferred [America Movil] to focus its merger and acquisition strategy on its domain of expertise via additional controlling stakes in Latin America wireless and pay-TV,” the firm said.
Macquarie Capital added that America Movil’s minority stake in KPN represents a financial rather than a strategic investment. According to its latest report, KPN, with its high yield, represents a safer investment than say a greenfield 4G build out in Canada or the purchase of prepaid operators in the United States, which have also been reported as potential targets.
“On the positive side, [America Movil] is further consolidating its presence in the U.S. MVNO market and taking opportunities outside Latam. In addition, while the U.S. market is more mature than the Latam market, it is more familiar to Carlos Slim than the European market, which would tend to lessen the potential negative reaction of a back-to-back acquisition. On the negative side, we anticipate investors questioning their potential remuneration (from [America Movil]), especially following an eventful 2011 with the acquisition of Net Servicos and Telmex’s free float; and good dividend stories in Latam, such as TEF Brasil and Oi,” reported Santander in an analyst statement.
America Movil said Simple Mobile has over 1 million customers and offers voice, messaging, data and wireless broadband plans. Across the Americas, America Movil counts 246 million wireless and 59.7 million fixed-line customers.
The Simple Mobile transaction is subject to certain approvals and conditions customary in this type of transactions and is expected to occur during the second quarter of 2012.
Tracfone had revenue of $1.08 billion in the first quarter of this year, a 24% increase from the first quarter of 2011. According to a Santander’s report, Simple Mobile could be worth about $200 million.