Telmex Privatization: First International Equity Offering from a Mexican Corporation

Theme: Clients

Goldman Sachs serves as advisor and global coordinator in the 1990 privatization of Teléfonos de Mexico.

The Mexican phone system operated by government-run Teléfonos de Mexico (Telmex) between 1972 until 1990 was mired in bureaucracy and inefficiency and in desperate need of modernization. New customers faced waiting periods of up to three years to get connected (in the United States, Europe and Japan it took only days). In 1989, Mexico had only 4.9 telephone lines per 100 people and 8 out of 10 homes in the country did not have telephone service.

In September 1989, Mexican President Carlos Salinas announced plans to privatize the phone system and sell the state’s 51 percent stake in the company as part of ongoing efforts to modernize Mexico’s economy and state-owned enterprises. The move to privatization began in December 1990 with the Mexican government selling 20.4 percent and a controlling interest in Telmex to a group led by entrepreneur Carlos Slim’s Grupo Carso for US$1.76 billion. Partnering with Grupo Carso were Southwestern Bell (US) and France Telecom. The Mexican government and agent bank Banco Internacional ISEFI chose Goldman Sachs as advisor in this transaction for its experience in the privatizations of British Gas (1986), British Petroleum (1987), and Telefónica of Spain (1987).

As the new management group pushed to modernize the system, Goldman Sachs would launch a global effort to sell more of the government-owned stake. In a May 1991 secondary offering, Goldman Sachs served as the global coordinator for an issue of 79.75 million American depositary shares (ADS), equivalent to 15 percent of the Mexican government’s stake in Telmex. The offering would raise US$2.17 billion. Each ADS represented 20 “L” shares with limited voting rights. The creation of the L shares helped ensure that the offering would have global appeal and liquidity while remaining under Mexican control. This was the first international equity offering from a Mexican corporation, the largest offering for a Latin American company to date, and the largest equity offering in the Mexican markets.

The firm also served as the global coordinator and lead underwriter in the May 1992 secondary offering of roughly half the Mexican government’s remaining stake, raising US$1.5 billion. By 1994, the Mexican government had sold its remaining 1.53 percent stake in Telmex. Goldman Sachs would continue to play an instrumental role advising Telmex into the next century as the company expanded into Brazil (2004-2006) and Colombia (2006-2007).