Why E*Trade and Other Investment Companies Are Likely to be Acquired by America Movil

Alejandro is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The Problem

America Movil (NYSE: AMX) is the largest company in Mexico by revenue, profits, assets and market value. 

With revenues of $47 billion only AT&T and 6 others are bigger. With profits of $5 billion only Vodafone and 4 others are more profitable. With assets of $67 billion only Deutsche Telekom and 8 others have more assets. With a market value of $93 billion only Verizon, Telefonica, AT&T, China Mobile and Vodafone have more value.

The Solution

You need to find who is going to steal your crown and do a preemptive strike before they come after you.

Let's take a look at Mexico's number 2: Banorte

There are only 7 companies making more money than them in Mexico. So, if anybody is going to beat AMX out of the top spot it's them.

Let's check the numbers but this time against THREE OR MORE of the largest competitors combined:

(Numbers in billions)

<table> <tbody> <tr> <td>Revenues</td> <td>$47.7</td> <td>Femsa <span class="ticker" data-id="207084">(NYSE: <a href="http://caps.fool.com/Ticker/FMX.aspx">FMX</a>)</span>, Cemex  AND Alfa </td> <td> </td> </tr> <tr> <td>Profits</td> <td>$5.9</td> <td>Grupo Mexico, Grupo Elektra AND Femsa</td> <td> </td> </tr> <tr> <td>Assets</td> <td>$67.9</td> <td>Banorte</td> <td> </td> </tr> <tr> <td>Market Value</td> <td>$93.4</td> <td>Femsa, Grupo Mexico AND Grupo Modelo <span class="ticker" data-id="203011">(NYSE: <a href="http://caps.fool.com/Ticker/BUD.aspx">BUD</a>)</span></td> <td> </td> </tr> </tbody> </table>


Only Banorte stands a fighting chance on its own. AMX needs to have more assets than the two largest companies combined.

E*Trade Financial (NASDAQ: ETFC) has assets of $47.9 billion and profits of $200 million

Profits bigger than $400 million with a cost of $3.2 billion or less produces this short list:

(Numbers in billions ordered by Assets)

<table> <tbody> <tr> <td>Company</td> <td>Sales</td> <td>Profits</td> <td>Assets</td> <td>Market Value</td> </tr> <tr> <td> <table> <tbody> <tr> <td>Tomony Holdings</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.7</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.5</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>30.4</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.7</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>CNO Financial Group</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>4.1</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.4</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>33.3</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>1.9</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>Air France-KLM</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>33.4</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.9</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>39.8</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>1.7</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>Finmeccanica</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>25</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.7</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>40.8</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>2.9</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td><strong>E*Trade Financial </strong></td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>2.4</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.2</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>47.9</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>3.2</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>Union Bank of India</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>4.2</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.5</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>53.1</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>2.4</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>Transneft</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>14.6</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>3.9</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>54.1</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>3</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>IDBI Bank</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>4.7</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.4</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>56.8</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>2.1</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>Bendigo & Adelaide Bank</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>3.9</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.4</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>58.6</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>3.1</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>Nishi-Nippon City Bank</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>1.9</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.6</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>88.5</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>2.3</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>Banque Nationale Belgique</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>2.2</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>1.1</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>100.2</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>1.3</td> </tr> </tbody> </table> </td> </tr> <tr> <td> <table> <tbody> <tr> <td>National Bank of Greece</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>10.6</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>0.6</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>161.4</td> </tr> </tbody> </table> </td> <td> <table> <tbody> <tr> <td>3</td> </tr> </tbody> </table> </td> </tr> </tbody> </table>


CNO Financial Group (NYSE: CNO) and E*Trade are the only companies located in the United States.

Why would AMX be so desperate to hold the #1 spot in assets?

Since 1955 the biggest companies have attracted large amounts of investment capital. The Fortune 500 list was a great idea. The Forbes Global 2000 list came later but is a better idea.

Forbes tracks companies by revenues, profits, assets and market value.

Why does this matter, not only to them but also to shareholders?

More investors are using Forbes Global 2000 to select the right companies. 

Why would they consider buying banks for this purpose since they are a telecom company?

AMX is no longer just a telecom company. They are now a bank, insurance company, satellite company (Llike Dish or DirecTV), retailer (They sell Sony Nintendo Wii, Microsoft Xbox 360...) 

Maybe Forbes will move them from the "Telecommunications Services" to the "Conglomerates" category.

Why would it happen?

Most companies have physical assets like factories, cars, buildings, equipment, inventory which could be dificult to unload. Just ask Panasonic. 

You are not going to trust your savings to Telcel Bank because you have never hear of them. E*Trade Bank is a brand that you already know since 1982 not only in the United States but also in Hong Kong, Singapore and United Kingdom. That brand is worth $3 billion and you get the rest of the company for FREE.

Specially if you invest enough cash to buy up to 1000 branches from banks in 100 countries and rename them E*Trade Banks.

E*Trade is having trouble getting new customers but with branches in other countries they could attract foreign investors interested in the NASDAQ and the NYSE. Their Growth will comes from abroad. They cannot afford to open a new branch in Turkey. AMX can.

E*Trade lost 7% of their bank accounts. What if you get FREE MINUTES when you open an account? AMX already sells debt to institutional investors and pays 6%. What if you could open a checking account that actually pays you 6% each year even if you are just a regular guy? Those interest rates are typical for foreign investors but americans are not used to those high returns. That could attract enough customers.

If you use your E*Trade Credit Card to buy AMX products or services then you get 0% interest for 36 months. Many big companies would drop their AT&T or Verizon corporate phones and switch.

E*Trade cannot increase dividends. AMX can take care of that debt and increase their dividend each quarter and that would bring a lot of institutional investors.

How will the companies benefit relative to what would happen without acquisition?

Only 9 telecom companies have more assets than AMX but they all have at least $100 billion in assets which will be used as collateral to obtain credit to buy companies like Telekom Austria (TKA) with $9.3 billion (AMX has 21%) or KPN (KPN) with $26.7 billion (AMX has 27%)

AMX is entering the european market and the european telecom companies are not going to let that happen.  They have no choice but to acquire up to 51% of both companies between the 5 of them just to keep AMX out of Europe.

I would not buy shares in the following european telecom companies because they are going to spend billions trying to keep AMX out of Europe:



Deutsche Telekom

France Telecom

Telecom Italia 


To keep Banorte and Cemex with combined assets of $97.5 billion from the top spot, AMX will need to acquire one bank with assets of $29.1  billion.

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