Debate Rages Over Carlos Slim, the Wealthiest Man in Latin America : Profile: The Mexican entrepreneur behind Telmex and many other business triumphs is lauded for his risk-taking and vision. But critics see a man who benefited greatly from government connections.
When he was 12, Carlos Slim Helu created a ledger so he could record exactly how he spent every centavo of the five-peso allowance his father gave him each week.
That childhood self-discipline underpins a career that has made Slim, now a gray-bearded 59, Latin America’s richest man. Forbes magazine estimates his fortune at $8 billion--making him the 27th-richest man in the world.
But parsimony isn’t the whole story. In a rare interview, Slim reminisced recently about another, very different early lesson from his father.
Julian Slim, who had immigrated to Mexico from Lebanon in 1902, and his brother opened a general store, called the Star of the Orient. In 1914, with the country disintegrating in violence at the height of the Mexican Revolution, Julian seized the moment, buying out his brother’s half-share in the business.
Within a few years, the shop was worth about $5 million in today’s dollars, and its profits paid for property that was soon worth $20 million.
Many financiers share Slim’s cautious approach to cash. And plenty of entrepreneurs can see potential in failing businesses and are willing to take aggressive risks in adverse times. But few have both of these contrasting qualities. It’s that combination, his admirers say, that has propelled Slim to the top.
To them, Slim is the model for the kind of responsible yet risk-taking entrepreneur that Mexico has often lacked. And he thinks big: His focus now is on a hemispheric telecommunications giant that would weave two continents together.
Yet despite his fabulous wealth, or perhaps because of it, Slim remains one of Mexico’s most fiercely debated figures, even as he tries to avoid the spotlight. To his perpetual frustration, he is a lightning rod for attacks on a political system that for decades openly favored a few powerful business magnates while the gulf between rich and poor grew ever wider.
This debate now revolves around Telefonos de Mexico, the national phone company that became Slim’s crown jewel when it was privatized in 1990 by then-President Carlos Salinas de Gortari.
How Telmex Grew
Slim bought his initial 5% controlling share in Telmex for $442 million, much of it borrowed from the government’s financial agency at preferential rates. He then issued stocks and bonds and raised more than $550 million, more than covering the initial loan, and has since raised his stake to 24%. Telmex, which remained a virtual monopoly until 1997, today has a market capitalization of $27.8 billion.
“I don’t doubt that he ran it well, nor do I deny that Slim is a new type of businessman in Mexico. But one cannot explain the brilliance of this strategy without the support of the state,” says professor Carlos Morera of the National Autonomous University of Mexico.
Slim is often labeled as one of the “friends of Salinas,” a slur in Mexico ever since Salinas’ term ended in an economic tailspin in 1994. Salinas’ brother Raul was subsequently accused of amassing a huge fortune, much of it skimmed from those who did deals with the government.
Slim and his children are stung by such criticism, which at times seems to smack of churlish envy. They are proud and private people, straddling the old and the new Mexico and uncomfortably occupying center stage during a historic transition.
Indeed, to peer inside the Slim family’s ascent is to glimpse the challenges facing Mexico itself as it tries to build a modern, competitive economy that creates more wealth for, and shares it more fairly with, its nearly 100 million people.
“Without doubt, the final part of this century in Mexico is being defined by Slim,” said Celso Garrido, a professor at the Metropolitan Autonomous University and a self-described “Carsologist” who follows Slim and his umbrella company, Grupo Carso.
Every day, whether they know it or not, nearly all Mexicans have something to do with Carlos Slim. Telmex is so big it accounts for nearly a quarter of the value of Mexico’s stock market. Grupo Carso owns Sears de Mexico and other retail chains. Slim owns mining and manufacturing companies, a bank and an insurance company.
Yet he avoids the society-page excesses of some of Mexico’s playboy entrepreneurs and is respected for his simple, family-oriented lifestyle. His ample girth attests to his love of Mexican cuisine; a friend, journalist Ivan Restrepo, says Slim knows where to find the best tacos and tortas (sandwiches) in Mexico City.
Corporate largess is minimal in Mexico, and Slim stands out there. His foundation is the largest provider of scholarships in the country--and of bail for youthful offenders.
His three sons are proving like-minded and similarly adept heirs as they assume key management roles in Slim’s varied enterprises. That suggests the Slim empire is headed for still more growth and greater influence in Latin America in the years ahead.
Last year, after several years of apprenticeship in various positions, Slim’s oldest son, Carlos Slim Domit, 32, took over as chairman of Grupo Carso and chief executive of its commercial operations. Marco Antonio, 31, assumed leadership of the Inbursa financial group, while youngest son Patricio, 30, became CEO of Grupo Carso and runs its industrial operations.
The sons’ first annual results have all been positive, reassuring the markets of prosperity after Slim.
The Power of Telecom
Barrel-chested and broad-faced, Slim exudes a fatherly gruffness tempered by glints of humor. His voice is gravelly from the Cuban cigars he constantly enjoys. His one sign of vanity is a tiny red monogram of his initials, C.S.H., on his tailored white shirts.
Though Slim remains chairman emeritus of all the operations, he has been able to reduce his hands-on role with his sons’ involvement and is now concentrating mainly on the group’s latest thrust: the international telecommunications market.
Until now, Slim has distinguished himself in part by building his fortune almost entirely with Mexican investments. Historically, Mexico’s wealthy looked for ways to slip their money out of the country.
But now he is ranging north and south into new cutting-edge markets--bidding to leverage his control of Telmex into a regional telecom power stretching from the United States and Canada to Chile.
“Internationally, we are going to those countries that have many immigrants to the U.S.--Puerto Rico, Mexico, Guatemala, et cetera,” Slim said.
His first major play abroad mirrored his Mexican style of buying up troubled businesses and finding opportunity where others despaired. In 1996 he bought Prodigy Communications Corp., a flagging U.S. Internet company. His $300-million investment soared in value to $800 million with Prodigy’s turnaround and its successful initial public offering on Wall Street last February.
In July, Slim announced plans to increase the number of private, public and cellular phone lines in Mexico from about 14 million now to 20 million by the end of next year, with new investments of more than $4.6 billion. Mexico had just 5 million phone lines when Slim took over Telmex, a huge obstacle to economic growth that he has vowed to overcome.
Now Slim has combined Prodigy’s online service with Telmex’s national network to take the lead in Mexico’s booming Internet market. Telmex offers an innovative program in which subscribers can buy a modern personal computer and pay it off in 24 installments, which are included in their monthly phone bill.
Meanwhile, since phone competition began in Mexico, Slim has been remarkably successful in fending off long-distance players AT&T; and MCI WorldCom. Although the newcomers made huge investments in Mexico and initially took about a third of long-distance customers, Telmex fought back aggressively. AT&T; and MCI now have about 25% of the market.
Slim attributes this success to dramatically improved service from Telmex, which has more than doubled the number of lines in use and eliminated what once was a two-year wait for a new line.
But here, too, Slim’s supposed friendships in high places have come under scrutiny: The competitors blame their troubles on government regulations that they say forced them to pay Telmex huge surcharges until recently, costing them hundreds of millions of dollars.
At a recent news conference on Telmex’s strong first-half results, Slim snorted at complaints by AT&T; and MCI with characteristic directness. Is there real competition in Mexican telecommunications, he was asked?
“Yes, but with bad competitors,” he replied. “They’re losing money at every turn, but that’s not our fault. They don’t know how to manage their businesses.”
Still, the questions sting.
“I think [Slim] is a world-class strategist and business developer, the shrewdest of anything we know in Mexico,” said Rogelio Ramirez de la O, a prominent economist. “But he is absolutely tainted by the context in which he achieved this great performance.”
Ramirez said Slim has benefited from “almost predatory advantages in markets where he faces almost no competition. [And] for someone who is cash-rich in an economy in a shambles, it’s easy to acquire businesses at rock-bottom prices.”
Yet Ramirez grants Slim an unusual distinction.
“He’s the only one of the big tycoons who does not behave obnoxiously. That’s very much to his credit. He’s quiet, not ostentatious. He’s a hands-on manager, a worker. He probably would have been better off without Salinas as a friend. It helped him originally, but in the long run, he’s tainted.”
Slim has tried repeatedly to shake off the unwanted perceptions. He personally sought an audience with legislators in 1995 to insist that the Telmex bidding process was open and fair.
Asked whether he still supports the ruling Institutional Revolutionary Party (PRI), Slim answered: “I am not a member of the PRI nor the PAN nor the PRD [the other two major parties]. I don’t even belong to clubs.”
He is no blind follower of the free-market economy, either, arguing that it “does not solve the problem of distribution of income. The state must take part of the wealth that is created and redistribute it.”
“I think it is very important to achieve a better distribution of income,” Slim said. “In all poor countries where this was historically an ethical or moral problem, it is now an economic problem. For firms to succeed, people must have an income to generate a market. If there are no incomes, then there is no internal demand.”
In a country notorious for bloated corporate offices, Slim works from a windowless space known as “the bunker” in a nondescript two-story building in Mexico City. To oversee his three operating conglomerates and their 131,000 employees, Slim employs just two secretaries “and a couple of guys” who drive him around and run errands.
Garrido, the professor, notes that this straightforward approach “is a huge contrast to the style of the great Mexican [industrial] groups in Monterrey, which put up marvelous, Pharaonic buildings. Slim had a small office, very modest and simple, and he operated for much of his career with his office in his head.”
So important is Slim’s place in the Mexican economy that the stock market wobbled in 1997 when he underwent surgery for a damaged heart valve. The market capitalization of his holding companies is well above the sum of the underlying assets because of the market’s high regard for Slim.
Slim’s first industrial venture came in 1965 when--already a successful stockbroker and property investor--he bought a soft drink bottling company. In 1976, he bought a graphics company, Galas, that was in financial trouble and locked in a bitter strike. In 1981, he made a similar but much bigger move, buying the Cigatam cigarette company, and the pattern was set.
Most often, Slim buys into companies to turn them around and expand them. He says his key criterion is not the cost of buying a business, but its potential. Only occasionally does he make a passive financial investment, as he wisely did in Apple Computer in 1997, when the computer maker was at its weakest. Slim reportedly invested $60 million in the company’s shares. Since then, Apple’s stock price has quadrupled.
Slim saw another opportunity in 1997: Sears de Mexico was moribund, its Mexican branches faded and hurting in the mid-1990s economic crisis. “We aren’t looking for short-term profits, and it’s a business we know. We know how it operates. Sears is a brand with wide recognition, an image that had fallen somewhat because there had not been enough investment,” Slim recalled.
He bought it for about $150 million including debt. Its value today, after a restructuring and new commercial developments built around existing Sears stores, is about $700 million.
Outside of business, Slim’s family, particularly his wife, Soumaya Domit de Slim, were all that competed for his attention. They would take ordinary family vacations, one of them along California’s Highway 1 in a rented van.
Slim was devastated by Soumaya’s death in May after a long battle with kidney disease. He still dresses in a black suit and tie to mourn her loss.
Her importance in his life is apparent from the name of his corporation: Carso is a contraction of their first names. And he gave her name to the museum he established in Mexico City to house his collection of Rodin sculptures. The museum is managed by his daughter, also named Soumaya.
The museum is one of the ways Slim attempts to connect with his country.
“Unlike many powerful Mexicans who love everything foreign, Slim is someone who loves all the cultural aspects of Mexico,” says his friend Restrepo, the journalist.
“One of the advantages he has, and this could explain his success as a businessman, is that he knows his city and his country firsthand. He can talk with anyone. He knows people’s idiosyncrasies. He doesn’t only know people with money.”
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The World of Carlos Slim
Grupo Carso (diversified)
* Assets: $5.8 billion
* Holdings: Retail (Sears de Mexico, Sanborn)
Construction (Condumex, Porcelanite, Nacobre)
* Employees: 58,000
Carso Global Telecom
* Assets: $3.6 billion
* Holdings: Telmex (24% interest)
*Prodigy (65% interest)
* Employees: 70,000
Grupo Inbursa (financial)
* Assets: $5 billion
* Holdings: Banking (Banco Inbursa)
*Insurance (Seguros Inbursa)
*Brokerage (Inversora Bursatil)
*Investments (Operadora Inbursa)
* Employees: 3,000
Source: Times research