Mexico City — The possibility of a merger between Izzi and Megacable has generated expectations about the implications that the move would have for both businesses and the telecommunications sector in Mexico, which has Carlos Slim’s América Móvil as the preponderant player.
After the furor generated by Grupo Televisa, Izzi’s parent company, after confirming its interest in merging with its competitor, expectations cooled once Megacable said it had declined the proposal. Despite this, Televisa promised not to give up on its intentions.
The possible merger would create a stronger competitor in the market that would surpass Telmex, the largest company in the sector and owned by América Móvil, in terms of revenue-generating units.
“The combination would create a leading cable operator in Mexico better positioned to operate in a highly competitive market,” Televisa said in a statement.
As of September, Izzi had just over 15.5 million paying subscribers for its cable, Internet and fixed telephony services, according to Grupo Televisa’s quarterly report. Megacable had 10.8 million subscribers.
A potential combination would represent 26 million revenue generating units, surpassing the 21 million that Telmex had at the end of third quarter, but the latter cannot offer cable television services for competition reasons and América Móvil is in ongoing proceedings with regulators to obtain the green light to offer this service.
Izzi and Megacable are currently investing to expand their geographic presence, something that would also lead to stronger competition among themselves and with other companies in the industry, such as Grupo Salinas’ Totalplay.
“This move underscores the strong undervaluation of Mexican cable operators driven by fears of a possible dilution of average revenue per user due to increased competition in the sector following entry into new territories,” according to Actinver analyst Valentin Mendoza.
Megacable has set itself the goal of doubling its operations in 2021 and reaching between 18 and 19 million subscribers by 2025, which it will finance with its own cash generation.
Izzi is also investing for growth, strengthened by the capital that Grupo Televisa has obtained from the sale of some assets and transactions, such as the creation of TelevisaUnivision.
On December 13, Televisa confirmed Reuters reports of its interest in merging its competitor Megacable, a company that until a few years ago had a regional focus.
Televisa’s initial proposal considers merging the cable business, commercially known as Izzi, with Megacable, which would be 55% owned by Televisa’s owners and 45% by Megacable’s owners.
The latter could receive a premium of approximately 19% for the transaction.
Megacable declined the offer, stating that it is not for sale. The Guadalajara-based company believes that it will generate more value with its current business plan.
Despite this, Televisa remains motivated by the possibility, given the reaction it has seen from some shareholders of its competitor, with whom it had a dispute six years ago for the distribution of restricted television channels.
Some analysts also look favorably on a possible alliance.
“We believe that a merger with Megacable could be positive, however, so far the parties have not been able to reach an agreement,” Vector analyst Gerardo Cevallos wrote in a note.