Telmex confirms bid for Colombia Telecom; comptroller doubts legality of deal

31 Aug 2005

Mexican telco Telmex has confirmed that it intends to buy a majority stake in Colombia’s state-run fixed line operator Colombia Telecom for USD350 million. Under its proposal, Telmex, owned by the world’s fourth richest man Carlos Slim, will put up USD260 million in cash and another USD90 million in stock for the stake, which it plans to merge with its local unit Telmex Colombia. The investment will entitle Telmex to a 50% stake plus one share; Telecom’s shareholders will own the remainder. In return for taking over the running of Telecom’s operations, Telmex will receive a management fee worth 3% of the operator’s revenues. A possible strategic partnership between Telecom and local mobile operator Comcel, owned by Slim’s wireless group América Móvil, is now being discussed as a way for the Colombian incumbent to enter the cellular market and offer its customers bundled fixed-mobile packages. Meanwhile, Colombian comptroller general Antonio Hernández has questioned the legality of Telmex’s stock purchase, claiming the process to find a partner for Telecom should have been an open bid involving other interested parties. Telecom says it based the process on several conversations with different operators, allowing each one to present a bid. Last Friday, the company published a memorandum of understanding (MOU) with Telmex, which will be ratified in early September if it does not receive a better offer.