Slim Mulls Merger of Brazil Assets - Analyst Blog

Mexican telecom tycoon Carlos Slim is mulling the merger of its Brazilian wireline and wireless assets. The world’s richest man is reportedly planning to consolidate Brazil-based fixed-line carrier Embratel Participacoes with Claro, the Brazilian wireless arm of America Movil (AMX). The merger may take place within the next couple of months.

The Mexican billionaire also plans to acquire a controlling stake in Brazilian cable TV operator Net Servicos de Comunicacao. However, the acquisition is subject to the approval of a law by the Brazilian congress, allowing foreign control of local cable firms.

The Brazilian merger plan follows the impending integration of Slim’s Mexican telecom assets, which is expected to be completed in June 2010. To consolidate its position in the fiercely competitive Mexican wireless market, Slim’s America Movil is acquiring Mexican wireline operator Carso Global Telecom, which has controlling interests in major fixed-line carriers, Telefonos de Mexico (TMX) and Telmex Internacional (TII).

The merger, if successful, will make America Movil a full-service provider enabling it to offer converged wireless, wireline voice, broadband and video services to over 250 million subscribers.

Claro ranks second among wireless carriers in Brazil with a roughly 26% market share. Approximately 20% of America Movil’s 2009 revenues came from Claro. However, the entity faces stiff competition from Vivo, a 50-50 joint venture between Telefonica (TEF) and Portugal Telecom (PT). Vivo is the largest wireless operator in Brazil with an approximately 30% share.

Embratel is a leading domestic and international long distance service provider in Brazil . The entity also offers data transmission, video and Internet services. If the merger materializes, Embratel’s incumbent CEO is likely to head the integrated (Claro-Embratel) company.

Brazil, which is America Movil’s second largest market, has become increasingly competitive. Competition has intensified with the acquisition of a controlling stake in Brazilian telecom operator GVT Holding by France-based media company Vivendi SA. Moreover, Telefonica is desperately seeking full control of Vivo to expand its footprint in Brazil, representing an emerging threat.

As such, Slim is consolidating and realigning his Latin American telecom assets to trim costs and increase competitiveness vis-à-vis existing and emerging rival operators. The Brazilian consolidation is expected to fetch meaningful cost synergies by the sharing of network infrastructure.