Carlos Slim to merge Embratel and Claro to cut costs

27 May 2010

Mexican tycoon Carlos Slim plans to merge his Brazilian fixed line and mobile businesses in a bid to cut operating costs, local newspaper Folha de S.Paulo reports, citing an unnamed source close to Slim as saying. Under the plan, Slim will amalgamate his fixed telephony division Embratel with mobile arm Telecom Americas (Claro), the local unit of America Movil – possibly within the next few months, the paper says. Folha went on to say that Jose Formoso Martinez, the current CEO at Embratel, could be appointed the head of the enlarged entity, although Claro’s chief executive Joao Cox is obviously also in the the running. Embratel and Claro both declined to comment on the rumour.

It is understood Slim is becoming increasingly unhappy at the results being posted by both Brazilian operations and sees the structural merger as core to the group’s ability to stave off competition from the likes of Paris-based media and telecoms conglomerate Vivendi, Telefonica of Spain and Portugal Telecom – all of which has significant telecoms interests in Brazil. In January this year Vivendi completed the purchase of virtually all the outstanding shares in Brazilian telephony and internet operator Global Village Telecom (GVT), having moved to acquire the unit in late-2009. Telefonica and Portugal Telecom meanwhile, share 50:50 control of Vivo Participacoes, the country’s largest cellco by subscribers. Combining the Brazilian units is part of Carlos Slim’s broader strategy plan – unveiled in January – to move the control of his fixed line operations in the region (i.e. Telmex and Telmex Internacional) to his flagship firm, America Movil (AM), in a bid to generate cost savings. It is thought that an Embratel/Claro merger could result in annualised cost synergies of between 20% and 30%, by sharing infrastructure and operating jointly to negotiate loans and funding. Folha also notes that AM is keen to take control of Brazilian cable TV and internet provider Net Servicos, though such a move would require a change in local telecoms laws which currently bar foreign control of Brazilian cablecos. Net Servicos is 51% controlled by Brazilian media group Globo, while AM owns the remaining 49%.

Brazil, America Movil (AM), Claro Brasil (incl. Embratel & NET Servicos)