Slim’s pickin’s

24 January 2014

Carlos Slim learned business from his dad… who got rich (but not in the way Carlos did) by paying ready money for distressed properties, and waiting for them to increase in value. Slim Senor paid cash for property and furnishings from the old elites of Mexico City fleeing the Revolution, waited for things to settle down, and sold to the new elites.

Following that simple plan, Slim the second got filthy rich not as a corporate raider, but by bailing out the “old elites” with cash, and sitting on his investments in the knowledge that they still had value. And, unlike a corporate raider, he wasn’t looking to strip his new properties, but wanted them to grow in value. Obviously, he bought up Telefonos de Mexico at below fire sale prices, but it was a loser at the time (perhaps by design, neo-liberal administrations finding it easier to sell the public on the need to dispose of state owned companies if they could make the argument that they were a drag on the economy).

Although he’s had a few losers, like CompUSA, along the way, the losers have been companies that couldn’t compete in an over-saturated market (like CompUSA), or could be folded into more successful ones. J.C. Penney, which opened its first Mexican stores in 1995, was just one more foreign retailer, and never was able to distinguish itself in any particular way. When Slim bought out J.C. Penney in 2003, they were folded into Sanborns’, a well-established name (and considered a much “higher class” retailer than Penneys). Sears, whose Mexican operations Slim had bought out between 1997 and 2000, while retaining a separate image (and a slightly different logo than the U.S. company) has become almost an adjunct to Sanborns… or at least where you find a Sears store in Mexico, there will be a Sandborns right next door.

Although his acquisitions have been mostly in telephony and retail sales, he seems to be following the a combination of the “money for the desperate” investment strategy (used to acquire Telefonos de Mexico, now Telemex) and his father’s simple idea of waiting out the bad times in his investments in the New York Times.

With newspapers closing throughout the United States, the New York Times was desperate for cash and was having trouble unloading its own less profitable assets when Slim “loaned” the Times corporation 250 million dollars in 2009. One uses the term “loan” advisedly. With the Times unable to borrow … especially in the sums it needed… at the then prevailing bond rate of 13.41 percent, Slim’s offer of the 250 million at 14 % was the best they could do. As part of the deal, Slim acquired an option for up to 15.9 million shares, and … by immediately acquiring enough shares to become “America’s Newspaper’s” largest outside investor, a seat on the board.

The cash infusion gave the Times not just breathing room to dispose of their less profitable units and to upgrade their existing products to at least remain relevant in a post-newspaper age, but even to expand. Slim’s “loan” paid for the Times’ acquisition of the Boston Globe in 2009.

At the same time, while it has meant the Times has had to trim dividends to meet the loan payments, it has been giving Slim a nice return. His estimated present 11.9 million shares have brought him about a million dollars in dividends… on top of the $263 million he’s estimated to have profited on the loan so far.

It’s unlikely Slim could, as he did with like J.C. Penney and Sears, simply acquire the company (except maybe its outside the U.S. holdings… there is no reason the publication formerly known as International Herald Tribune could not become Mexican owned) or fold it into some other company. The New York Times being to U.S. media what Sanborns is to Mexican drugstores, I’d more likely expect Slim to fold other media holdings into the Times Company (as happened to the Boston Globe, probably with Slim’s approval). But… even with brokers unlikely to recommend investing in newspapers, and especially not in the New York Times Company, I wouldn’t count on it losing money, especially Carlos Slim’s money.