World's Richest Man: The Evolution of Mexico's Carlos Slim

Includes: AMX, TMX
by: Tom Au, CFA

According to Forbes Magazine, Mexico's Carlos Slim Helu has edged out Warren Buffett, and yes, even Bill Gates, to become the richest man in the world. Slim is his father's surname, and Helu is his mother's (maiden name), and thus he is distinguished from his own son, Carlos Slim Domit. So who is this relative unknown from a developing country?

Unlike Buffett and Gates who started from scratch, Slim was more like America's John Paul Getty, someone who inherited a small fortune and made it larger. He was the son and grandson of two prosperous Lebanese-Mexican retailers, who learned his trade well from his ancestors, working in their stores in the capital, Mexico City, then dealing for his own account. He also made money trading in Mexican stocks. By 1965, at the age of 25, he was worth some $40 million (Wikipedia), about the same as the partnership managed by the ten-years older Buffett.

In 1966, he married Soumaya Domit, and shortly after, established a vehicle named Grupo Carso (CARlos SOumaya). One by one, they assembled a "grabbag" of "aspirational" companies for Mexicans; Sears of Mexico, the local arm of the American retailer (NASDAQ:SHLD); Grupo Sanborn (and Denny's of Mexico), American-style restaurant chains; Cigatam, the distributor of Philip Morris (NYSE:PM) cigarettes that eventually put its main competitor, Empresas La Moderna out of business; and Condumex, an auto parts company.

By buying cheap assets that were turned around, Slim created an industrial conglomerate that could grow earnings 15% a year or so for four decades. His signature management style was the very "American" one of reducing layers of bureaucracy to cut costs and speed up decision making. Slim also created Grupo Financiero Imbursa, a source of vendor financiing that was much smaller, but much better run, than larger banks such as Banamex (bought by America's Citibank (NYSE:C)), and Bancomer (now a subsidiary of Spain's Santander (STD). This was in the manner of Buffett's purchase of Wells Fargo (NYSE:WFC).

In 1990, along with France Telecom (FTE) and other partners, Slim participated in the "privatization" of Mexico's Telefonos de Mexico (Telmex) (NYSE:TMX). This was a cheap, and pretty good business in and of itself. Slim eventually became the largest shareholder of the company and its chairman.

But what made the deal really interesting, was that it served as a springboard for cellular and wireless operations. In 2001, Telmex spun off America Movil (NYSE:AMX), a (Latin) American wireless business that operated not only in Mexico, but also Brazil, Latin America's other large market. The stock skyrocketed more than ten-fold after the spin-off. Slim's nearly one-third stake in this company is worth some $23 billion.

Slim was less successful north of the Rio Grande, and the setbacks he received in the U.S. may have delayed his emergence as the world's richest man. In A Modern Approach to Graham and Dodd Investing, we recounted how, in 1999, we started accumulating a position in CompUSA at around $6 a share, only to be taken out by Slim for $10.10, "versus [our] back of the envelope calculation of $15 to $20 a share...But CompUSA proved to be a disappointment for Mr. Slim [who shut it down]. We also went in with Slim on a U.S. office equipment company, Office Max." Slim is also the 6.4% owner of The New York Times, a sometimes struggling newspaper that nevertheless has great "strategic" and prestige value. Finally, as the owner of the Mexican arm of Philip Morris International (PM), it makes sense for him to have a large holding in the parent company.

Disclosure: Author holds a long position in BRK.A and is author of a book about Buffett and Slim

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