Shares Of Mexico's Maxcom Surge On Buyout Expectations

Shares of Mexican fixed-line phone company Maxcom Telecomunicaciones SAB (MXT) soared as much as 30% Thursday on news that the struggling carrier has put itself up for sale.

Maxcom has hired Barclays Capital to find a buyer, according to people familiar with the matter. Spain's Telefonica SA (TEF), French entertainment and telecommunications group Vivendi (VIV.FR), and other international and Mexican investors are among the potential buyers in contact with the company, they said.

Maxcom said Thursday in a filing with the Mexican Stock Exchange that it has looked at strategic options and has had talks with other market participants since the company was founded in 1996. Maxcom "remains open to having conversations," but at the moment hasn't reached an agreement on any sort of deal, it said.

Chief Executive Eduardo Vazquez told analysts in a conference call July 28 that carriers like Maxcom with "last mile" access to clients and fiber optic infrastructure are a "valuable target" for potential buyers.

As of May 31, Maxcom's largest shareholders were Bank of America (BAC) with a 40.5% stake, and local investor group Grupo VAC with 10.2%, according to the company's 2009 annual report.

Maxcom is one of several small phone companies that compete with former state monopoly Telefonos de Mexico SAB (TMX), or Telmex, which is controlled by billionaire Carlos Slim. Telmex controls about 80% of Mexico's fixed phone lines with about 15.7 million lines in service.

Maxcom's decision to look for a buyer comes as the company depletes the $260 million it raised through an initial public offering in October 2007. Maxcom reported negative free cash flow of 79 million pesos ($6.2 million) in the first half of the year, while cash on hand as of June 30 fell to MXN678.8 million. Its debts totaled MXN2.55 billion.

Maxcom will likely cut its capital expenditures from $60 million this year to $30 million in 2011, the bare minimum needed to maintain its network and replace customers who leave, Vazquez said.

Manuel Jimenez, telecoms analyst at Ixe Casa de Bolsa, expects Maxcom to end 2011 with just over $20 million in cash.

"The company is going to have to make some decisions because its cash is becoming increasingly limited," he said in a telephone interview.

Maxcom's CPO shares rose 28.5% to close at MXN8.06 on Thursday. Even so, the shares are still down 30% so far this year, compared to a 0.2% decline in Mexico's benchmark IPC stock index.

Mexican law limits foreign investment in fixed-line phone companies to a maximum 49% equity stake. Those limits haven't kept Telefonica, which controls Mexico's No. 2 mobile operator, from investing in closely held fixed-line carrier Grupo de Telecomunicaciones Mexicanas SA, which had about 430,600 lines at the end of June.

Last year, Telefonica lost a bidding war with Vivendi for control of Brazilian fixed-line carrier GVT Holding.

Telefonica Mexico officials weren't immediately available for comment regarding the firm's potential interest in Maxcom.

Enrique Yamuni, CEO of Mexican cable TV and telecommunications provider Megacable Holdings SAB (MEGA.MX), said in a conference call on July 28 that he looked at buying Maxcom for its fiber optic network, but opted instead to partner with media giant Grupo Televisa SAB (TV) and Telefonica to successfully bid for a 20-year concession to lease 19,457 kilometers of unused fiber optic cabling from state-run utility Comision Federal de Electricidad.

Maxcom provides phone, broadband, and television services in five cities as well as mobile telephony through an agreement with Telefonica. The company had nearly 245,000 residential and business clients at the end of June.

-By Ken Parks, Dow Jones Newswires; 52-55-5980-5177, ken.parks@dowjones.com

(Brett Philbin contributed to this article.)

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