Carlos García-Moreno - CFO
Andrew Campbell - Credit Suisse
Vera Rossi - Barclays
Andre Baggio - JPMorgan
Rizwan Ali - Deutsche Bank
Mauricio Fernandes - Merrill Lynch
Stanley Martinez - Legal & General
James Ratzer - New Street Research
América Móvil, S.A.B. de C.V. (AMOV) AMX´s Strategy on Potential Acquisitions in Europe Conference Call June 21, 2012 1:30 PM ET
Good day ladies and gentlemen and welcome to the América Móvil corporate conference call and webcast to discuss this strategy and potential acquisitions in Europe. My name is Alicia and I will be your operator for today. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.
I would now like to introduce your host for today, Mr. Carlos García-Moreno, Chief Financial Officer. Please proceed.
Thank you, good afternoon everyone. Good evening to some of you. We have decided to have this conference call so that we could give you a bit more of a feel for how it is that we have been backing our decisions to make a move into Europe. We believe you have been following some of these from the press already we left here about a week, but as it is important that we give you an overview, a more comprehensive overview of América Móvil’s thinking in terms how and why to go into Europe.
If you recall in America, in Latin America, we are today investing cleverly. We are seeing good organic growth and we expect growth to continue to be fairly solid for a number of years. And that means although we are investing heavily on our networks, we are now investing, I believe we invested about $10 billion and this year it is going to be probably higher, and that we have audited those will turn roughly about $9.5 billion we are looking at for the year.
But the fact of the matter is that we are expecting to continue to see good growth in data services and the expectation that this growth will pick-up particularly in mobile requires more investment on the fixed-line side. So we are today basically deploying more fiber optic very much across the board and we are moving towards the segmentation of new technologies. We are very close to launching in Mexico our 4G network. We’ll be doing the same with some countries in the Caribbean too.
But having acquired the Comcel first and then the Telcel and the Telmex shares, and the Telmex Internacional shares over the last couple of years and also the same with Net Serviços. Looking at the region, you will not see very many more meaningful M&A opportunities. That’s partly because we have already a very well established footprint in the region. There is not many more places to go to. In South America, we are not in the (inaudible) we currently do not have any plans of going there.
And in terms of consolidating assets, well there is not that many more assets that we could buy partly because of regulatory reasons and partly because there is not that many more assets in Latin America. So from the point of view of M&A, not of organic growth, from the point of view of M&A, we were going out of meaningful opportunities here in Latin America.
Now for all of you that have been with América Móvil for some time, you know that M&A was actually for América Móvil it allowed us to diversify. We are evaluating today and the risk. They have allowed us to have more stable catalog. It also gave us scale which is strictly important in this business and in time, the scale and the diversification led to better credit ratings and that meant, that we actually pickup the markets and better funding conditions, which is we could end up becoming positively. So M&A resulted in diversification scale and better credit ratings and that in turn is allowing us to continue with more M&A.
If you look at what has happened over the last 10 years or so, you will see that the value creation was quite significant for América Móvil, led its original basis which was Mexico to innovate, to move to other countries particularly in South America. So today one could not consider América Móvil having we not entered markets like Brazil, like Colombia, like Argentina as we’re doing (inaudible) in this process M&A was a key ingredient of the value creation that we've developed over the years.
Now since we did not have that many more opportunities here in Latin America in terms of M&A, we really are running out of many meaningful opportunities. We started to look at other options, one option certainly was the US, that one that came up repeatedly in the last year, the last couple of years, but as you know we have in the US the MVNO that has been our model that has worked very, very well for us and for a number of reasons we have decided against owning a network, becoming a network operator in the US.
So we really started looking at other options and quite frankly we are not a rush to do anything and we basically took our time, but I would say that as of late, the evaluations in Europe start to make more sensible. Clearly, we will have a number of challenges the way that we have say, in the short term, but we think that with long-term perspective evaluations for Europe today appear to be at front peak probably and more so than in other regions of the world.
Now one thing that for us was important that's something that we have defined internally is that to the extent that we were to do (inaudible) of the region that that should not crack because we are doing in the region, that is to say we are not investing in Latin America and so we are going to be investing elsewhere and it is clear that our core market today in Latin America and that we intend to be keep our main priority.
Whereas in the past we didn't have any problem going into a new country; taking over an operation from day one and managing; we think in Europe it has to be different. On the one hand, it’s important for often different markets there are different from the ones that we have in Latin America; we are not preparing today that we know how they operate. I think that we have to develop a better understanding of the competitive environment, of the regulatory environment, of the type of marketing that is being done and presented to the consumers and alike. So we do not believe that we will be prepared today to take one full operational responsibility in all of the European markets.
So that one thing that is different from what we were operating here in Latin America. One other thing that is different is that the size of the investment will tend to be larger and that means that we have to be mindful of the impact that M&A activity might have on our overall indebtedness. There are few restrictions and I want to underline it. There are few restrictions in terms of the leverage that we can take of. That has been carry forward by the rating agencies.
And we intend that we do not want to end our indebted as a consequence of M&A activity and to the extent that we do want to hold down to our trends quite exactly which are the best in the sector today; to that extent we will have to abide by the restrictions that the rating agencies have imposed on the ratings. After all these ratings are guarantying of the regulation of environment, continued access to the capital market and very attractive bonding rates. So we also think it’s important to hold onto these ratings in the timing picture of financial turmoil having better rating is very useful and very helpful for a company like ours.
One thing also that is important to keep in mind in Europe is that in the case of incumbent one is to expect the nationalized entities and the cultural identities of those incumbents. One have to keep in mind that some of these companies have been around for many, many, many years and that they are usually important to their society; they are strictly important, they have strategic package; telecomm infrastructure is always a strategic package, so it is important to cover and to be sensitive to these operator.
So the approach that we are taking in Europe is quite different from the one that we have taken in America. We are now as opposed to what we are going to do; we are now entering into long-term strategic partnership. So we can establish mutually beneficial alliances with the young partners that will allow us obviously to develop on the scanning of system zone, but without having to consolidate the facts as a consequence of taking our company or without having to take on the operation of this.
So that is the approach we are looking at it differently in Europe and how we have done it in Latin America. We are not really talking about any of these done having strategic partnerships but we have a meaningful investment, it has to be a meaningful investment for us to make sense, but of course we can really work hand-in-hand with the companies and the various stakeholders in those companies.
Now moving to the next section, I would like to give you overview of what the company that we have been investing in look like. One of them is KPN; you can see the map KPN is based in Netherlands. It has fairly large operations in Germany and Norway and Belgium. In the table you can see that the revenues of KPN have hovered around €13 billion and that has been around 5 billion slightly little bit less, their CapEx has been [around] $2 billion for some time and the free cash flow has been again also [$2 billion] this year is going to be slightly shy of that.
Net debt of 11.7 billion at the end of last year and the companies that you can see also in the map. In the Netherlands, it is an integrated Telco; it's got system mobile operations. In the other two countries, it's a challenge to the companies on the mobile space. They have an MVNO today in Spain, they even have one in France but I believe they have also in (inaudible).
Now these countries Netherlands, Germany and Belgium in Northern Europe happen to be among the more solid countries in all of Europe. If you look at the GDP per capita is better than [Europe] also in Netherlands and Belgium have higher GDP per capita than Germany itself. It is a region that has more than a hundred million population, or 110 million folks, most of that over in Germany. And it's a region that is not basically different that of leverage problems, that we are seeing in other parts of Europe.
These are the countries that are in better shape from a fundamental perspective and they are nevertheless going to suffering from the problems of the rest of Europe and of the [unintelligible] going on around the Euro. The fact of the matter is that as you can see here in the table, all of these countries had pretty reasonable growth last year and the defection of the (inaudible) is going to be largely negative this year, the other one should be going more with of breakeven in terms of growth.
The following slides that we present to you are is the division of (inaudible). You can see KPN has profitability [6.6 million] plus because of that, roughly in Germany with $2.7 million, we have almost 10 million mobile subscribers in the Netherlands and 4 million in Belgium. And like the design sides they have approximately 8 million [RPUs] although they have been covenant. So they have most of the broad lines in the country 4 million, which have a 2.7 million broadband lines and business that have been (inaudible) for them, which have already 1.4 million.
So altogether, the total of nearly 45 million accesses total revenue of (inaudible) in KPN. In the case of whole market in the Netherlands, the market share of KPN is high than January covenants. In the case of board profit, it has 80% of the board's profit of Netherlands. It has a 4% market share in the broadband sector, the fixed broadband sector.
In case of mobile revenues it has 46% of the revenues and then it has a 70% market share which again is fairly recent what we develop practically from [scratch yard] a couple of years ago.
In the Netherlands, looking at the mobile market, there are three players KPN is the largest with a 42% market share, followed by Vodafone and T-Mobile that are approximately at 30% each.
In the case of Germany, there are four more players today. KPN would be the third largest after T-Mobile in a market that still has lot delivering in terms of penetration and very finally volume Belgium KPN we started with France Telecom in (inaudible) third major largest player and distant operations that has been going out. Now, if we look at the revenue rates of KPN it has nearly 50% of their total revenues coming from the Netherlands again we are still competent and we have fixed time mobile operation Germany represents 23% and 6% would be the difference and 10% difference and mostly represented by long distance traffic that is run by grant auxiliary of KPN.
Now moving on to Telekom Austria, we have here a picture and the map, all those great country, you can see now that the total revenue have been close to [$4.5 billion] they were 4.5 last year, they may be close to that this year. It is having around 1.5 billion Euros CapEx has been at around 0.8 million its less than a [billion] free cash flow has been or it is expected to be around 600 million Euros, net debt of 3.4 billion at the end of last year which is probably around $6.3 times net debt that we (inaudible). And the following slide we show you some of the basic macroeconomic indicators of this company. Altogether and that are covered by Telekom Austria at approximately 40 million and a little more than $40 million.
This is a region that has one time Austria which is very strong country economically. You can see the GDP per capita is still to be [one] and then you have like in Netherlands but we have a number of Eastern European countries that have more characteristics of emerging markets, here with the penetration rates that are still lower than more developed front usage levels lower and obviously there's much more diversity in terms of the per capita.
So you know with the exception of Austria today, in contrast today in Compact or Austria, our more opportunities are through emerging markets but they are more familiar with. One important thing is that again with the exception of Austria at least in the US and all the other countries have their own currencies and they have been doing rather well even in the quarters of the economic crisis that we are going through. It is expected to be this year at least is more important competitive in terms of population will also go and again [24 million] not facing any issues of over leverage of the government or over leverage of the bank, and the leverage of populations and obviously in other parts of Europe and again they have the own currencies so they have more facilities in terms of economic management.
We present in the next slide the distribution of practices, altogether 20 million mobile subscribers in Telekom Austria 5% of both in Austria itself. We feel that as what we get with KPN they are really an integrated company, really [advantage] today in Austria, they have about 2.5 billion [IEUs] altogether between mobile and fixed line they have almost 23 million accesses in Telekom Austria.
In next slide, we are showing you the market share in the mobile market of Telekom Austria, so it is the number one in Austria with 40% of the market it has (inaudible) our market shares in Belarus, in Bulgaria to nearly 50%, in Croatia almost 40% and then fairly reasonable market shares in Slovenia and Macedonia, (inaudible) in Serbia.
Next slide we will look at the Austrian market. Again the combined fixed and mobile. In fixed line Telekom Austria has 68% of the broad line and it has 50% of the broad line accesses, in the case of the mobile market with probably 40%. In Austria, there were [four] values they are now consolidating down to three so in Telekom Austria telecom (inaudible) in Germany and then you (inaudible) for which is the process of acquiring France Telecom operations in Austria.
If you look at the distribution of revenues like countries it's somehow (inaudible) with KPN, most of the revenues are in the core market now 65% of the revenues are coming from Austria, that are very well distributed among other countries, particularly Bulgaria, (inaudible) and Croatia.
And in the next slide what we have done is we have put together the footprint of KPN on the one-time and telecom mostly on the other one. As you can see, taken together, this footprint covers all the area from the North Sea to the Adriatic, and even to the Black Sea. So it's a quite significant split. It's important to look at the following. In total, mobile subscribers that are encompassing this area are 56.9 million, and the total revenues that we have in the area are about €17.7 billion per year. So it's an important operation altogether.
What have we done so far? In the case of KPN, we launched towards the end of May a partial tender offer. So we tendered in this case up to 27.7% of the outstanding shares of KPN, okay. That's more or less equivalent to premium shares. In the tender offer, we have per -- we will be paying €8 per share. This tender offer will expire on the 27th, which is Wednesday of next week. And we have been buying in the market.
We already had our stake at the tender. We announced the tender offer. But today, the increase of America Móvil at the close of the day-to-day is 20.92% of KPN. The tender offer will be for the difference between the 27.7% that we have paid, that we intend to purchase, and the AMX share costs that are trading at that point. So the extent there has been demand in the market, there's going to likely less purchases in the tender offer.
In the case of Telekom Austria, we entered into an agreement on June 15th with Mr. Ronny Pecik and, therefore, in Austria to acquire approximately 21% of the outstanding shares of the company. In that way, you can see that we entered into agreement, we acquired 5% of the stake and the remaining 16% is subject to receipt of (inaudible). We expect to close the application of this additional stake in the next several months, by the end of this year.
And as of today, our share totaled in Telekom Austria is 6.7% and it will reach 23% after completing the transaction as it has been contemplated. Now let me move on to show you the impact that this decision have on our indebtedness. And assuming that already the acquisition with the cost of (inaudible) for the purpose of this exercise, we would say that before the acquisition, our net debt is $22.9 billion.
The acquisition in terms of dollar as a percentage is likely less than $5 billion. So, that means after the total of the acquisition, the net debt will have increased from the $22.9 billion to $27.8 billion. Now, these acquisition are really going to be paid for with the cash that we have on hand. Having paid for them, we'll have remaining approximately $3 billion in cash, and that means that the gross debt that we will have after the acquisition -- we today have about $30.8 billion -- is not going to change at all.
So again, these acquisitions are not leading to an increasing in the gross debt that we have. We have already cash on hand with which we'll perform the acquisition. After this acquisition, again assuming that we would close everything today, our net debt to EBITDA would be 1.4 times higher than we have been before. But it will be coming down overtime.
The gross debt to EBITDA ratio today would be at 1.5 times, and that's very close to some of the limits that we have put in there. So I think that we are comfortable with this level of rating. The rating agencies have all of them, three rating agencies, continue our ratings after the announcement of the KPN transaction, and the Telekom Austria we already have received one or two.
So I think that we are on the same page with the rating agencies. One that has been very important for us is that we have a very good maturity profile of our debt. What we are showing here is the data that's come in due for the next several years. You can see from here to the end of year 2020, the average amortizations that we have are only about $2.2 billion; this for a company that has $23 billion or so in EBITDA.
So I think that we are in very, very good shape from the point of view of the financing risks. We are not showing this year the terming out of some of the acquisitions, the point that we have applied for the acquisition but we would expect that most of these (inaudible) will have a tenure that is going to be more than eight years. So it should not affect the maturity profile that we are seeing here.
So I think it's important again to highlight that the average life of our mix is more than 10 years, I believe more than 10 years. And the next several years, we do not see any significant refinancing risks here because of the fact that we have stretched out the maturity profile of our debt. Now -- it's important to develop a constructive dialog with our new partners.
And it is also very important to have contact with the various stakeholders. So we obviously want to have a constructive dialog with the management of the companies, but we also need to have with our contacts with all the shareholders and with all the stakeholders, which would be in some cases (inaudible). So it's important to highlight that for this account so far is that these companies are run by managers that are professional.
That means they have a good level of traditional expertise. I think that these are very solid people. We have our net profile. And I think that that is a good basis for any ongoing dialog that we have done before. Normally this is something to look at with the system. This is a company that we can exchange in terms of operations. But it is very important that we are focusing on the potential synergies that we can see.
And this was -- in this case, I think it's important to mention the following. I was saying at the beginning of this presentation that scale is hugely important for these deals. And it happened in this case that both KPN and Telekom Austria are relatively taken by the (inaudible). And so to the extent that America Móvil can bring to bear its own scale for the benefit of the partners, to that extent we ourselves have been a significant investor in those companies should stand to benefit.
So I think that's the area that we need to work more closely with them in the short-term. So I just want to highlight again that we have decided to enter into strategic long-term partnership in Europe. We view these partnerships with great significant value. These investments have been carefully prepared. The overall risk that we are assuming and are moving is long. It's important to note that our financial strength will not be affected.
We've already seen great income from the average rating. Our credit ratings will be maintained. We are not doing operational unit. We are not driving fees today. And we expect this investment as important to recap generated from the outset. Now also, something to note is that our distribution America Móvil shareholders will not be materially different from those that we have paid over the last four years, the average of the last four years.
To the extent that we go into these partnerships, they are benefiting us in many ways. But clearly one of them is that it allows us to continue to be part of becoming more diversified and therefore a stronger company. This limited investment that we are making has greater exposure towards the European countries, 57 million world subscribers and almost $23 billion in revenue.
We now have operations in Northern Europe, on the one hand, which is a more solid region from the point of view of the economic fundamental, more mature industry also. But we also have started now our presence in the Central and Eastern Europe. So we are seeing markets that are more -- as I was explaining before -- more like emerging markets. There is probably more pent-up growth in those markets.
They are obviously less mature markets. They have lower penetration rates and so on. And they have our representative economic challenges and different economic opportunities and the complete (inaudible). But what we also should keep in mind is that in the end America Móvil remains committed to its core market in Latin America.
We will continue to invest heavily to remain at the forefront of technology an also ahead of the competition. We are prepared to take advantage of the opportunities that this will represent, a lot of that having to do with new data services that are growing already (inaudible).
So with this, I would like now to finalize the presentation. Thank you again for coming and attending this, and we will open the floor for questions. Thank you.
(Operator Instructions) The first question comes from the line of Andrew Campbell with Credit Suisse. Please proceed.
Andrew Campbell - Credit Suisse
Yes, hi Carlos. Thank you very much for hosting the call. I wanted to ask about the CapEx number that you mentioned in the beginning. I believe you said you are increasing guidance from $8 billion to $9.5 billion. And my question is does that include some of the spectrum purchases that you are making in particular in Brazil within that number or is this strictly an infrastructure related number?
Well, we look at -- thank you for the question, Andy and good to talk to you. We’ve had provided guidance at the beginning of the year of $9 billion in CapEx. I think it is going to be somewhat higher to about $9.5 billion and I think it is partly because we are doing LTE and partly because of the acquisitions of the licenses. So at this point I think that's our best estimate that CapEx will remain in the neighborhood of about $9.5 billion.
Andrew Campbell - Credit Suisse
Okay, so that would include the 4G licenses that were recently acquired in Brazil?
That's correct, Andy.
The next question comes from the line of Vera Rossi with Barclays. Please proceed.
Vera Rossi - Barclays
Hello Carlos. My question is about your leverage. Your leverage is now at 1.4 time net debt to EBITDA and we have seen below that in the previous years. What is the maximum level you can reach to maintaining your current ratings? Thank you.
Hello Vera. It’s good to talk to you again. Well, the leverage is – the different rating agencies have different guidelines for the leverage. But generally I can tell you that their take is not on net debt, but their take it on gross debt to EBITDA. I will say that the type is constrained that we have today really by Moody's and the take of Moody’s is basically said that the ratings could be revised if we were to have our leverage ratio higher than 1.5 times gross debt to EBITDA on a sustained basis, on a relative basis. So I think that the other rating agencies probably have their leverage in the neighborhood of 1.5 to 1.8 or to 2, but again, we want to abide by without the constraint. So that’s what we are doing.
Vera Rossi - Barclays
And when they say on a sustained basis, it means you cannot reduce this leverage in a couple of quarters. Is that right? The way they say on a sustained basis?
Well, I don’t know, that will depend, and I don’t know that we have considered them, but I think I’ll tell you basically we do not have a problem if leverage comes down fairly quickly. But again it’s not tend to be taken directly, I think that’s important thing that we want to say that we have had extensive competition with the rating agencies; (inaudible) we have talked to all of them. We know exactly what they feel; what they think like and then to be quite frank this is not something that we have only have had this year.
We have had closed dialogue with them for many years and we know very well the (inaudible). So I think that we are both on a different page; I think that on the one hand they have a track record of having been very conservative and a track record of having very disciplined for our position and I think that they respect this track record and they know that we are conservative and they would not allow our indebtedness to get out of hand.
The next question comes from the line of Marcelo Santos with JPMorgan. Please proceed.
Andre Baggio - JPMorgan
Hi, in fact this is Andre Baggio that is talking here. Carlos, I would like to know what are the further steps; are you hearing?
No we couldn’t hear you.
Andre Baggio - JPMorgan
Okay. So Carlos, if you can now hear me, we would like to know if there is a possibility of expression into other areas of Europe like say in the countries whether companies that have in Latin America like Italy, Spain or Portugal?
We are really not talking for the anyone now; we need work on consolidating this investment that we are making and in case it’s all of this in new course and we have said before; we have never been outside of Latin America and that is that we have lot of work and simply trying to define the overall relationship and define the opportunities with these companies that will become our partners. So I think that we are really very much focused on this.
And then again probably expanding on the prior question, we have obviously leverage our restrictions, so it’s not like in the Europe to go ahead and have unlimited capital committed in it and not working. I think to recall, what you are trying to say is we have a lot of work as it is; we need to consolidate while we have begun which is these investments into KPN and Telekom Austria and then I think we are mindful of our leverage and we would want to bring it down soon by making new ventures here in the company.
The next question comes from the line of [Dan Korkowski] with UBS. Please proceed.
Hi Carlos, just a question on what level of input is América Móvil going to have in terms of strategic planning in these companies; how involved are you going to be and obviously you are taking a large minority stake, but you are not going to have control over the cash flow?
Yeah, well, thank you for breaking that. We don’t really, not really say that we understand all of these markets; we will be not having then here for them, when you look at them from a part and this is really closer to the action. I think that’s for us is going to be important I think basically to exchange the experiences, to see, innovate, in some cases they have gone through some issues that we likely will have to confront down the road in Latin America as the industry matures.
So I think it’s important to find out how things came up, what things were required, but it’s also been involved. We again have to report you now on the issue of affiliate which is important and I think the usual thing you see, you know they are just an areas for that are becoming increasingly important and let me just mention one two basically. You know basically it’s (inaudible) in our portfolio two, three years ago and now it’s leaving a part of our revenues coming to the close to 10% of revenues, growing very, very fast; we have now almost $50 million basically going onto plenty probably before the end of next year.
And as opposed to what we have with the air time in mobile here you actually have to buy the input in order to sell it, you need to buy content at least in this case it’s clearly very, very important and I think that we can help probably our partners and get their conditions for the content that we want to probably get on our own.
So I think that there are ways of again of working to help them with the benefits of our help fro presenting; some of them have to do procurement, but not only procurement and this process again which can be something that benefits of both at the same time because they are going to get without having to do anything special on their own, they are going to get themselves (inaudible) they are probably going to get more profit; I don’t know in the very long distance, but then on the other hand we are also going to be benefiting because we are going to see the fruits of these benefits through the returns on our investments.
So I think that’s the way how we have and we are seeing it. That is important this question because for us to and this will be quite some work on our part and here obviously we’ll require as we put for the benefit of the companies, of these companies, of these partners some of that will work it. But in order to go along that, we really need to have a meaningful investment in it, we could not possibly think that we could do all of that and then in the company, that many of the companies than we would normally have any returns. So we are going to do all the work, we need to have the returns that corresponds to that kind of goal and that comment can only be had with improving a lot of them.
Your next question comes from the line of Rizwan Ali with Deutsche Bank. Please proceed.
Rizwan Ali - Deutsche Bank
Carlos, what has response been so far, when you are going to talk to the -- from the managements of KPN and Telekom Austria; I have heard that KPN management is going around telling investors not to tender their shares; you know that AMX wants to buy. So it appears to be a bit of hostile reaction from them so far?
Well I think that we have basically taken consent of all sides, to Austria and to the Netherlands and I am afraid that we did find a different reaction in Austria and in Netherlands and we wonder what really surprising for us was the wonder we saw in the Netherlands, because in essence we are saying you know, we want to be a long-term strategic partner helping you think long term, keep – helping you, you know for the really big space to anything long term. It is not something easy when acquiring in the midst of the economic crisis and turmoil in the market and we are saying you know we are a strong partner; we are a strong partner financially and want to be there for the long term.
If not now, but for the future in our view. I think that América Móvil is a respected company I think it has shown that it has a good knockout. It has a good track record. We have had a history of having long-term partnerships by having (inaudible) as well. One in bonds with TNT which has been our partner for more than 20 years and another turning point France Telecom. So in that track record, it signifies that we have never engaged in [corporate] transactions. Given the fact that we are proposing something that we will keep today a lot of stake I would say or stakeholders of the company.
We would expect that we will get some different reaction now. The fact of the matter is that a lot of the concern around price, as you would recall, the share price as we are offering, which are good $20 billion, 0.5% premium covered, the price that's present in the market before we launch offer. So we're offering a 27.5 premium and clearly it appears that the market (inaudible) with the company to the extent that we will now have, as I mentioned earlier, 21% of the company even before we reached the offer.
So I think the important thing that we understand that their expectations or value are different. When the fact of the matter is that we need to move along. I think that we want to how you travel all along today to develop good relationship. I think that there is a scope for mutual benefit. I think that we can be very supportive shareholder.
It can be very support to the shareholder I think at the management level. As I said, we speak the same language, we are the same kind of technicians, we understand the business very well and we know the vendors, we know the problem the industry is of also we all speak the same language and we have respect for them. We think again we are professional and hardworking people. And we would like to have something very, very fruitful come out of the application.
Rizwan Ali - Deutsche Bank
One last thing is I mean you must finalize the company is close to buying this approximate. If there was one thing that we would want to change in the KPN and Telekom Austria what would that be, low leverage or more growth or lower dividends whatever?
One of the reasons why we don’t want to go into more in this kind of position because we do not pretend, we cannot pretend that we know the market. We cannot pretend today that we can tell you what to do, what they are doing is right and what they are doing is wrong because we don’t really have an experience of what those markets look like. We do not know what are their method, or challenges, their competitive dynamics. We don’t really know returns of their company, I think that we are very basically to work together with them and at this point I cannot tell you in addition given the specific recommendation that we have in mind.
So the next question comes from the line of Mauricio Fernandes of Merrill Lynch. Please proceed.
Mauricio Fernandes - Merrill Lynch
I know you mentioned if there is no negotiations happening for new acquisitions right now and you also mentioned I think was one of the conclusions or one of the, yeah one of the conclusions of the presentation, it was a very clear footprint in Northern Europe and Eastern Europe and now I am assuming your leverage permits or that you can generate quick enough for cash flow so that you reload the balance sheet, would it make sense to buy something outside of this strategy with Northern Europe, Eastern Europe or north, I mean at this point the credit crisis, or the economic crisis in those areas are way too risky and therefore the focus for América Móvil from a macro standpoint will continue to be Northern and Eastern Europe.
I cannot tell you that we have a plan that you have to go to really step one and then you have to go to step two and then step three. Again, I think in case we have to come here to get to know the companies, get to appealing for (inaudible) its not only an issue of having capital I was also (inaudible) because we have known for some time that we will have to find out many opportunities elsewhere throughout the region but we also view that we were not in a worse. So in fact that we have selected this company, the Telekom Austria, this says a lot about it that we think that there's personal things that we had is we work with both together. I think that's what we want to focus today, you know I mean because that leads to all things down the road or not, its too early to say, as I have said before you know you cannot think of running either I have not even learned to walk you know. Operator? Hello?
Mauricio’s line is still open in the conference call.
Okay, we will take the next question.
Your next question comes from the line of Stanley Martinez with Legal & General. Please proceed.
Stanley Martinez - Legal & General
The way that you framed your vision of the long-term strategic alliance with KPN in particular, it seems also there's a lot of common ground and it doesn't seem as though you particularly plan to propose resolutions at board meetings so do you think that the disagreement that you had was simply down to price and a standstill on voting. And maybe related to that looking at the more positive aspects from both sides, is it too early to talk financially about how significant some of the benefits from procurement scale might be for América Móvil and for some of its new strategic alliance partners in Europe.
Yeah, thank you. The procurement benefit I think there's two details because we haven't been able to have sufficient dialogues to roll them out but I think they can be important and on the first question I think really this is to probably say that the only thing that was, that we had at least initially was right and that goal is led to all the differences around the world. That is what basically the main difference that we have to do with price. We had a view that the company also year offering and we were really not prepared to move from the review.
But again, I think in the end it's up for the market to make the call, that nobody was obliged to sell in the tender or outside of the tender. And I think that people have found that probably €8 was a good price after all. So I think that once that we finalize this profit, again it's going to be at the end of Wednesday of next week, which we'd probably won, the issue of profitability behind us and that was the only issue that we understand was the different between the two companies. Maybe we can now start working together.
Stanley Martinez - Legal & General
I agree. And have you given any further thought, Carlos, to the degree to which your investment in European markets might actually help America Móvil compete in its home markets? For example, applying some of the insights from mobile broadband as a fixed substitute in Austria or some of E-Plus' work on market segmentation to some of your Latin American markets?
You are absolutely right. I think that in more mature markets we have gone to earlier than we have. In some cases, we still haven't gone through. It had gone through a certain condition. One of them that we're very (inaudible) and it's moving from both data generally in this mobile space. I think the issue of SMSs being displaced by data packages is also what was important.
So you're absolutely right. I think that a number of things that they have already gone through where they have had this important learning experience, where they know what drives, what worked, what didn't work, what to the expected. I think both are going to be quite helpful for us, even when we end up going through the same issues.
Stanley Martinez - Legal & General
Thanks very much, Carlos.
Thank you, Stanley. I think we have time for one more question.
We do have time for one more question, and that question comes from the line of James Ratzer with New Street Research. Please proceed.
James Ratzer - New Street Research
Yes, good afternoon. Thank you very much indeed for taking the question. Two questions, please. Firstly, Carlos, at the beginning of the call you mentioned you saw valuations in Europe were particularly attractive at this time. Yes, share prices have fallen, but so have earnings over the past few years. I was wondering if you could just go into a bit more detail, what you find particularly attractive about valuations at this time.
And also, you've been stressing throughout the call that you're kind of coming into Europe to learn more about it. I was wondering if I could ask you about the U.S.? This is a market you know very well through your presence in TracFone. Why have you decided not to deploy extra capital in the U.S.? What was it that detracted you from investing further in that market? Thank you.
Well, thank you. The U.S. is a very large market with two players that are very well ahead of the other one. It's a huge market that in Telco and normal investment and the players in that market already are spending a lot themselves. So it's difficult to keep up, let alone catch up. And there is already more difficulties as we would be reluctant to participate in the environment. So I think the U.S., on the other hand, we have a platform.
We work with practically all of the carriers today, the main carriers. We have good stable relationships, stable relationships with them. This model has worked very well for us. And it's a model that does not require us to allocate any capital. And it's a model where we have a clear -- we take competitive advantage. I think we do very well prepaid. We are now the number one prepaid by far in the U.S. market.
I think (inaudible) and that's not something that we want to do by going into a benchmark that we really require putting capital. An amount of capita cannot possibly dream of having or committing. So I think we are (inaudible) to large. It's to be a position and we thought that (inaudible). I think that you have to consider that in Latin America as several of the people that are equal, know very well, we have had our share of prices over the years.
We have seen some common goals, which I'd probably not talk about, about many deals. We had -- (inaudible) everybody was speaking of profitability, what about to get elected, and then nobody wants to enter Columbia because the agreement was that Columbia had not gone for 10 years, and because we never go there. So we know that in terms of prices, people tend to take more extreme views than are actually guaranteed by the fundamentals.
And I think that by working in the Europe and Italy, yeas it indicates that there are going to be economic challenges in the short-term. Yes, it indicates that it may be not a one-year thing. It may be a bit more prolonged. But we also know that down the road things are going to get better, that the industry is not fundamentally wrong. I think I have a lot of very attractive things, infrastructure ready which is quite profitable.
We have very good quality of things with know-how. And you have to -- it's a wealthy region in spite of its current problems. So we think the potential for Europe to recover is good. We don't when it's going to become, but we think that market has to at least -- although we think it's some of the things that are purely economics and they have to do with the fundamentals of the industry.
When I go to generalizing that all in terms of European business, I was explaining another question that we took our time to determine what companies we thought made sense. And the companies that we selected were KPN and Telekom Austria. There's plenty of fallen ones out there. There's plenty of fallen ones. But surely, we had it cheaper from the standpoint of profitability.
But we thought that the combination of the actual capabilities of the companies that we selected would bring the overall they will bring much better (inaudible) if you consider previously in all other regions. So that's basically how I would put it on the record. So thank you very much.
James Ratzer - New Street Research
Just a handful of question please just on KPN, if you had a minute. Just on your views on E-Plus in Germany, to what extent will you be trying to encourage KPN management to monetize the value of that asset through consolidation in Germany, which I think is an area a lot of people are looking at, at the moment? Thank you.
Well, thank you. But first two questions, well, since we wanted to tell to the management. We just are riding this year. We do not think that we can come and tell them what to do because we do not really know what position they are in. So I think it's very pretentious to say that we know everything and that we can tell them what to do. I think let's survive, let's develop, again in the coming quarters, and see what their options are.
And then based on that, maybe we can come up with a solution. But our intention has always been, we have said it repeatedly. Frankly, we come with an open hand and we want to work shoulder with shoulder with the management. That's the attitude. It's not coming to tell them what to do or what they need to do. But we want to develop a real partnership, one that can provide the value.
I think doing that sometimes -- we always have a balance, it will be short-term and long-term use of shareholders. I think that we are one that have that notion of being a long-term shareholder, and KPN will know or they will come to know for taking part in this. We think that they need that support.
James Ratzer - New Street Research
Thank you very much.
Thank you very much and thank you all for attending the call. And if course, we remain at your disposition for any further calls or questions. Here's Daniela and Anna with me, so you can contact either one of them or myself. So thank you again. Good bye.
Ladies and gentlemen, this concludes today's conference. You may now disconnect. Have a great day.
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