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Carlos Slim Helu makes a rare exit: CompUSA is an atypical loss for Mexican tycoon
(Dallas Morning News, The (KRT) Via Thomson Dialog NewsEdge) Sep. 15--On his way to becoming the third-richest man in the world, Carlos Slim Helu often relied on a simple strategy: Buy troubled companies on the cheap. Turn them around. Then reap the rewards.
Some of that thinking may have been behind his 2000 purchase of CompUSA Inc., when he paid $800 million for a company that had boasted a market capitalization surpassing $3 billion just a few years before.
But instead of giving the Mexican billionaire another feather in his cap, CompUSA turned into a rare blemish on his stellar record.
Now he's looking to cut his losses.
This week, Mr. Slim, 66, acknowledged through a spokesman that he has hired an investment bank to shop CompUSA, which is based in Dallas, to potential buyers.
Mr. Slim and his lieutenants "have been very successful in buying companies with operating deficiencies, then staging a turnaround," said Luis Miranda, a financial analyst with Santander Investment Securities in Mexico City.
"But U.S. electronics consumer retailing turned out to be more difficult than they expected, and the CompUSA turnaround was taking longer than they planned."
It's hard to tell how much Mr. Slim might get for CompUSA, but analysts say it's a fair bet that the venture will not rank as a triumph.
"It's definitely a disappointment," said Urban Larson, a longtime Slim watcher who works as a portfolio manager with F&C Asset Management in Boston.
Mr. Slim's spokesman declined to comment for this story.
CompUSA's 2005 revenue of $4.6 billion was slightly lower than the $4.7 billion posted in 2004, despite efforts to compete with big-box retailers such as Best Buy Co. and Circuit City Stores Inc.
Still, CompUSA retains a valuable brand name, analysts say. It has about 230 stores in the United States and Puerto Rico. It employs 14,000, including about 1,500 in the Dallas-Fort Worth area.
Rarely mistaken
Missteps have been rare for Mr. Slim. The portly, cigar-smoking tycoon combines a sweeping strategic vision with a knack for recalling even the smallest financial details of his many companies.
Today, Mr. Slim is the third-wealthiest man in the world, according to Forbes magazine. He trails only Microsoft Corp.'s Bill Gates and the legendary investor Warren Buffett, to whom Mr. Slim is often compared because of his bargain-hunting savvy.
Mr. Slim's vast business emporium has interests in telecommunications, retail, construction, heavy industry and even a railroad. A widower, Mr. Slim remains the master architect. But day-to-day authority has largely passed to his three sons and his sons-in-law, along with other lieutenants.
Mr. Slim, the son of Lebanese Christian immigrants to Mexico, did not start out at the top.
After working his way up with successful ventures in finance and small business, he broke into the upper echelon of business in 1990. That year, he bought Mexico's national phone company.
Telefonos de Mexico SA became one of the most popular emerging market stocks of the 1990s, as well as the bellwether of the Mexican Bolsa and Mexico's largest private-sector company.
It also beat back long-distance challenges from U.S. rivals. Mr. Slim says their business plans were not well-suited to the Mexican market. Critics say he used political influence and an army of lawyers, who fought regulations designed to boost competition.
Meanwhile, Mr. Slim developed a reputation as a turnaround artist through a series of acquisitions by his company Grupo Carso.
Mr. Slim's formula -- honed in such disparate businesses as retail, construction, tobacco and heavy industry -- was to slash overhead, eliminate excess bureaucracy and make operations more efficient.
"Carso is a company that's done very well by maintaining a low profile and low overhead, and by staying very focused on operations," said Santander's Mr. Miranda.
Perhaps Mr. Slim's greatest success has been America Movil SA, which provides wireless services throughout Latin America. Its stock has soared since 2001.
A blot on his record
But the CompUSA venture gives Mr. Slim a less impressive record north of the border.
CompUSA was already in need of a turnaround in 2000. Losing money and with Wall Street increasingly disappointed, its stock price tumbled from a high of $38 to less than $10.
Mr. Slim saw opportunity and took the company private.
"We believe that we can re-energize the organization by taking the consumer experience of shopping at CompUSA to a new level, by uniting excellent customer service, whether in-store or online," Mr. Slim told BusinessWeek at the time.
Legal challenges emerged. COC Services Ltd. of Dallas accused Mr. Slim and others of conspiring to derail COC's plan to open CompUSA stores in Mexico.
In 2001, a Dallas jury ordered Mr. Slim, CompUSA, and former CompUSA chief executive James Halpin to pay $454.5 million in damages. The verdict was overturned, but it cast a pall over the business.
PC sales problems
Meanwhile, Best Buy and Circuit City were drawing more customers with a wide range of electronics, including computers.
"The Best Buy model was working pretty well, and on the other end, some of the boutiques, particularly Apple, were working quite well," said David Kay, president of Endpoint Technologies Associates Inc., a market research firm in Wayland, Mass. "But the PC-exclusive store was not working out as well."
Mr. Slim seemed to realize he needed a bigger footprint. In June 2003, he offered $1.5 billion for control of Circuit City. Circuit City's board rejected the offer as too low.
A few months later, CompUSA made a less ambitious expansion, paying $55 million for Good Guys Inc., a California-based home entertainment chain with 71 stores.
In June of this year, almost two years after an appeals court overturned the verdict against Mr. Slim and his associates in the COC Services suit, the Texas Supreme Court denied COC's petition to review the case. That put CompUSA in the clear and may have paved the way for a sale, analysts said.
But whoever buys the chain will need to invest plenty of sweat equity, analysts said.
CompUSA's product selection is still overly weighted toward high-end computers at a time when desktops priced under $500 are increasingly popular, said Toni Duboise, a senior analyst at market research firm Current Analysis Inc.
The company also needs to get better at selling high-definition televisions, which are becoming increasingly important at competing retailers, she said.
"Margins on PCs are shrinking; they're razor thin," she said. "TVs have widening margins, because of the technology they've changed to."
E-mail bcase@dallasnews.com
Copyright (c) 2006, The Dallas Morning News
Distributed by McClatchy-Tribune Business News.
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