Telmex Shares Decline on Union Selloff Rumors

MEXICO CITY — Shares of Telefonos de Mexico took a beating Wednesday after rumors, later denied, that its union may sell its stake in the Mexican telephone company.

The company, which is also known as Telmex, was the most active stock on the New York Stock Exchange. It closed $2.375 lower at $51.875.

In an auction of Telmex stock in December, 1990, the union bought 467 million shares, or 4.4%.

Rumors that the structure of the union share trust was being changed, possibly to give workers the freedom to borrow against their shares or to sell, sparked the drop in Telmex’s stock.

“That rumor caught on, and people started selling,” a U.S.-based analyst said.

Shortly before the close of trading, union officials, speaking on the floor of the Mexican stock exchange, denied the rumors of collective selling of union shares.

“There exists no proposal or intention on the part of the syndicate to carry out a collective sale of Telmex shares,” a spokesman told traders.

The spokesman said, however, that the stake held by the union would be individualized into separate stakes for the 52,000 members and transferred to a new trust. The change is meant to allow workers to borrow against their holdings.

The existing trust, administered by development bank Nacional Financiera, holds the shares and does not allow workers to use their shares as collateral.

Separately, the secretary general of the union, Francisco Hernandez Juarez, said the union had sold some of its stake last month to repay Nacional Financiera for a loan used to buy the shares in 1990.

The union’s sale, equivalent to about 1.4% of Telmex capital, left workers with about 2.9% of Telmex, or 315 million shares, Hernandez said.

Traders said the market was worried that if the union decided to sell even part of its stake, it would create a flood of shares and overwhelm investor demand.

An advertisement by the union in local papers Wednesday said each worker should have the right to manage his or her portion of the trust or to keep the shares within the collective trust and use them as collateral for loans.

Many analysts said they expected Telmex stock price to recover quickly from Wednesday’s sharp drop after investors digest the late-breaking denials by the union.

“Below $52 a share it is an excellent purchase,” said Alvin Mirman, vice president of research at Gruntal & Co., adding that he intended to upgrade the company from a hold to a buy today.

But some analysts were more cautious in their forecasts for the phone giant.

Stephanie Georges, an analyst at Salomon Bros., said the rumors may make investors more wary.

“I don’t know that (a recovery) will be that easy, given that the momentum has slowed and sentiment is nervous,” she said.