Analysis: Mexican companies could resort to more spinoffs to enhance market value

Conglomerate Alfa did the same, with its investors approving a plan in July to distribute its stake in subsidiary Axtel to existing Alfa shareholders. That plan followed a previous failed effort to sell Axtel outright. Then, late last month, broadcaster Televisa, whose shares have plunged more than 40% so far this year, pitched a plan to spin off its sports and gaming operations, arguing that the move would cut corporate expenses. Some analysts said both Alfa and Televisa may consider further spinoffs as they look to boost their depressed valuations. Other companies, like Coke bottler and retailer Femsa, whose shares are down 3.3% year-to-date, after gaining 6% in 2021, may follow suit.

Such steps have provided some lift to share prices under pressure from concerns about slowing growth in Mexico although they have been far from a panacea. Alfa lost 2.69% the day after its shareholders approved the Axtel spinoff, while Televisa’s shares advanced 0.86% the day after it revealed plans for a similar move.

Meanwhile, shares of America Movil have risen 13% since Sept. 29, the debut of its cell tower unit Sitios Latinoamerica in the market.

Companies with diversified business units such as Alfa have tended to underperform the wider index, but the amount has varied due to the nature of their businesses, experts added.

“There is always an ‘ugly duckling’ aspect to conglomerates, and spinoffs allow the parts to be separated so that the different cycles that one company goes through do not contaminate the others,” Moody’s analyst Nymia Almeida said in a video interview.

‘ROOM TO BREATHE’

In the case of Alfa, eight out of nine analysts consulted by Reuters predicted its petrochemical subsidiary Alpek could be next in line for the spinoff treatment.

“Alpek has shown strong results and a spinoff would leave it room to breathe, make its own operational decisions and achieve the valuation it deserves,” Monex analyst Carlos Gonzalez noted.

Unlike Axtel, whose shares have consistently underperformed Alfa’s, the stock performance of Alpek has been stronger than that of its parent over the past year.

Asked about a future Alpek spinoff, a spokesperson for the conglomerate said that “for now, the focus is on successfully concluding the spinoff of our stake in Axtel. The next steps and their times would be defined later.”

Televisa, meanwhile, could follow its sports spinoff with either its editorial or magazine businesses, two analysts said. Both said any such move would likely happen in the longer term.

A spokesperson for Televisa declined to comment about future spinoffs.

OTHER CANDIDATES

Bottler FEMSA, whose businesses range from gas stations to convenience stores, could also look to hive off one or more of its units, according to six analysts interviewed by Reuters.

Its Solistica logistics business, which has expanded through a string of recent acquisitions, would be one obvious candidate, four analysts said.

Other candidates include FEMSA’s marquee Oxxo convenience store chain as well as its Spin fintech business, which aims to reach 10 million users by 2023.

Still, there is little certainty on Femsa’s next move after a recent string of acquisitions including Swiss kiosk operator Valora. The company may make an announcement about its restructuring process during the first quarter, analysts said.

“FEMSA could sell small parts such as its gas stations, make an extraordinary dividend, perform buybacks or increase capital allocation to core businesses such as Oxxo to align its activity with market expectations,” Itau analyst Alejandro Fuchs said, adding that such moves might predate any spinoff decision.

A FEMSA representative did not reply to a request for comment.

(Reporting by Valentine Hilaire in Mexico City; Editing by Christian Plumb and Matthew Lewis) By Valentine Hilaire