America Movil, Telmex to Split Stocks

Latin American telephone companies America Movil and Telmex, the crown jewels of Mexican billionaire Carlos Slim’s business empire, plan to split their stocks and hand out bigger profits to investors.

Cellphone operator America Movil will split each share into three, while fixed-line market leader Telmex will swap two new shares for every current one, the companies said Wednesday.

America Movil also plans to boost its annual dividend by 75% to 0.21 peso per old share. Telmex, formally known as Telefonos de Mexico, will pay a dividend of 0.76 peso per share, up 12% from last year.

The two companies, controlled by Slim, account for about 25% of Mexico’s stock market and are among the businesses best known to Latin American investors.

Companies often split their stocks when they reach high prices to make it easier for small retail investors to buy round lots of shares, thereby bolstering liquidity.

America Movil’s stock is seen by many investors as a bet on the region’s fast growth in cellphone use, while Telmex is increasingly focusing on the profitable niche of data transmission over its fixed-line networks.

America Movil’s near-record-high stock price makes the split in its shares unsurprising, said Martin Lara, an analyst at Santander Investment.

“There’s no specific reason, it’s just the fact that [the stock price] has increased a lot,” he said.

Both companies are also increasing the amount of money set aside to buy back their shares, with America Movil increasing its buyback fund by 5 billion pesos ($455 million) and Telmex adding 6 billion pesos ($546 million).

Using available cash to buy back shares, which reduces the number of shares outstanding in the market and pushes up the price, is sometimes seen as a sign that management believes the stock is undervalued at current levels.

Slim spun off America Movil from Telmex in 2001, and since then the cellphone company has overtaken its former parent in size and growth.

Telmex’s shares gained about 16% in 2004; investors in America Movil reaped a return of nearly 100% during the same period.

On Wednesday, America Movil’s stock slipped 0.5% to close at 31.17 pesos while its shares fell 0.8% to $56.45 on the New York Stock Exchange.

Telmex ended off 0.8% at 21.70 pesos, and its American depositary receipts fell 1.1% to $39.37 on Nasdaq.