America Movil: Slim idea

One must assume that Carlos Slim is smart. He is the richest man in the world, after all. His wealth, like that of others at the tip of the global pyramid, was built on monopoly profits, but he has deftly consolidated and diversified his way to a long run in the top spot. This makes America Movil's entanglement with KPN, the Dutch telecoms group, hard to interpret. Mr Slim's strategy for KPN remains a mystery.

He bought just under 30 per cent of KPN's shares in 2012 for €3.1bn or about €8 a share. Last spring, he invested another €1bn in the Dutch company's rights issue in order to avoid being diluted. Since then, he has managed to reduce his losses somewhat by intervening in KPN's sale of E-Plus, its German mobile subsidiary, to Telefonica, which raised its original offer by €500m to €8.5bn (assuming that regulators let the deal go through).

Mr. Slim has offered to buy the remainder of KPN for €2.40 a share, or €7.2bn. In response, a foundation that "safeguards the interests" of KPN implemented a poison pill last week. So negotiations will continue - if Mr Slim's bid was not merely a play for leverage in the E-Plus deal.

Perhaps Mr Slim simply thinks KPN is cheap at five times earnings before interest, tax, depreciation and amortisation. But given its small size and declining prospects, it is not a screaming bargain. Or perhaps he sees KPN as a way to participate in pan-European telecoms sector consolidation. What gives him the confidence to think that regulators will allow this?

Investors in America Movil must wonder what Mr Slim's plan is. The Mexican group's business is growing, unlike that of KPN, but its stock market value has fallen by a quarter, or about €17bn, since it bought the initial stake in KPN. Mexican stocks generally have risen a tenth over the same period. Some of the drop can be put down to new Mexican telecom regulations. All the same, Mr Slim owes his shareholders a very detailed account of his European vision.

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