> Forwarded message: > > Date: Fri, 3 Oct 1997 16:07:50 -0400 (EDT) > > From: "Victor O. Story" <[EMAIL PROTECTED]> > > To: ATWS <[EMAIL PROTECTED]> > > Subject: Sudden targets: Foreigners snap up Mexican companies > > ---------- Forwarded message ---------- > > Date: Tue, 30 Sep 1997 11:57:23 -0400 (EDT) > > From: Mauricio Banda <[EMAIL PROTECTED]> > > To: Multiple Recipients of List Mexico2000 <[EMAIL PROTECTED]> > > Subject: [WSJ] Sudden targets: Foreigners snap up Mexican companies > > > > Sudden targets: Foreigners snap up Mexican companies; impact is enormous > > > > By CRAIG TORRES > > The Wall Street Journal > > September 30, 1997 > > > > MEXICO CITY (Wall Street Journal) -- Walking into the Grupo Financiero > > Santander Mexicano SA bank tower, Chairman Marcos Martinez sees > > reminders of how foreign takeovers are changing Mexican businesses. > > > > Big banners with Banco Santander SA of Spain's red and white insignia > > now hang from the building like flags of conquest. Flicking on his > > computer, he knows he will find at least five electronic-mail messages > > from his boss, Ana Patricia Botin. She doesn't sit in the next office > > or even down the hall; she might be in Madrid, Buenos Aires or New > > York. But the globe-roaming chief executive of Santander Investment SA > > wants constant updates on her recent Latin American takeover. > > > > Santander's purchase of Mexico's fifth-largest financial group is just > > part of the acquisition wave sweeping Mexico. In a huge transfer of > > ownership from Mexican to foreign hands, foreign multinationals have > > spent more than $7 billion in the past two years buying up stakes in > > everything from a maker of tequila bottles to Mexico's most famous > > brewer. > > > > The acquisitions are causing upheavals in boardrooms and on factory > > floors. They are changing the way Mexicans work and the way they > > perceive their future. And they will be a critical issue in the > > presidential elections in the year 2000 because they are attributable > > to the current administration's economic policies. > > > > To many free-trade advocates in and outside of Mexico, the sales > > represent the inevitable globalization of Mexican companies, which > > long hid their inefficiency behind protective tariffs and regulations. > > As those barriers are felled by the North American Free Trade > > Agreement and other accords, Mexican companies are increasingly > > exposed to global competitors and now may have little choice but to > > become a multinational or marry one. > > > > So far, a surprising number of Mexican companies are selling large > > stakes to foreign partners rather than expanding abroad. There are > > distinct reasons behind each sale. Some stem from issues arising as a > > new generation of the controlling family takes over, and others from > > financial needs or changes in strategy. But generally, the goal is to > > become bigger, smarter and truly international companies as quickly as > > possible. > > > > ``Nafta has forced the Mexican business community to think more > > globally,'' says William Rhodes, vice chairman of Citicorp, which has > > recently expanded in Mexico. ``With these new linkages, Mexican > > companies will be tougher competitors and more global competitors.'' > > > > In July, Britain's B.A.T Industries PLC took control of Cigarrera La > > Moderna, Mexico's tobacco giant, in a $1.5 billion deal. A few days > > earlier, Philip Morris Cos. increased its stake in the second-largest > > tobacco company, Cigarros La Tabacalera Mexicana SA, to 50 percent > > from about 29 percent for $400 million. In June, Wal-Mart Stores Inc. > > announced plans to acquire control of Mexico's largest retailer, Cifra > > SA, in a deal valued at more than $1 billion. In July, Procter & > > Gamble Co. acquired a consumer-products concern, Loreto y Pena Pobre, > > for $170 million. Bell Atlantic Co. has acquired full control of its > > cellular-phone partner, Grupo Iusacell SA, with total investments of > > more than $1 billion. The list goes on and on and is expected to keep > > growing. > > > > But not everybody is happy. > > > > ``The economy has lost its national meaning,'' laments Ricardo Pascoe, > > director of international affairs for Mexico's largest left-wing > > political party. ``Wealth and economic strength and the existence of > > well-established firms are just being siphoned off to globalization.'' > > > > The merger wave may have caught many Mexicans by surprise because it > > is a sharp change from the policies of former President Carlos Salinas > > de Gortari, who emphasized Mexican ownership during his $23 billion > > privatization program in the early 1990s. A few dozen wealthy Mexican > > families piled their fortunes into banks, mines, the telephone company > > and other enterprises. For the most part, foreign companies were > > allowed to buy only minority stakes in big businesses or were invited > > to invest only in subsidiaries. > > > > With the peso then strong and interest rates relatively low, > > consumption boomed, revenues surged and the new owners quickly got a > > rich payback. Foreign investors tried to get a piece of the action, > > but the Mexican owners were loath to share the bonanza. ``Between 1992 > > and 1994, we made a dozen trips and met most of the families that Wall > > Street firms introduce you to; they viewed us as potential competitors > > rather than potential partners,'' says Thomas Hicks, chairman of > > Hicks, Muse, Tate & Furst Inc., a Dallas buyout firm. > > > > Then, the December 1994 devaluation of the peso and the subsequent > > shifts in economic policies ``changed everything,'' Mr. Hicks says. > > Because the Mexican families had been reluctant to share ownership in > > the early 1990s, they had taken on a lot of debt rather than sell > > stock. But a spike in interest rates that followed the devaluation > > pushed many companies to the brink of bankruptcy and a few over the > > cliff. When the once-wealthy Mexicans looked around for help, they saw > > most of their friends just as bad off -- or worse. Standing at their > > doors were big foreign companies flush with cash. So, Hicks Muse, for > > example, bought stakes in four Mexican companies in the past year. > > > > ``The peso collapse created a huge need for capital,'' says Mr. Hicks, > > who expects his firm to invest $1 billion in Mexico and South America > > within three to five years. > > > > Even though Mexico has weathered the economic crisis, current policies > > are likely to keep enticing foreign investors. After the devaluation, > > President Ernesto Zedillo and Finance Minister Guillermo Ortiz > > emphasized dollar-earning exports over consumption. They have allowed > > the peso to float freely against the dollar and other currencies so it > > can depreciate, if necessary, to keep Mexican goods competitive in > > foreign markets; nonoil exports rose 33.1 percent in 1995 and 18.6 > > percent in 1996. But the strategy has a cost for Mexican companies. > > Mexico's long history of currency instability leads investors to > > demand higher interest rates on bonds and loans compared with those > > for a similar company in a developed economy. So, although Mexican > > companies would like to expand abroad, most find the financing costs > > prohibitive. > > > > Only two Mexican companies -- Cemex SA, a cement maker, and Pulsar > > Internacional SA, an agribusiness conglomerate -- have so far managed > > to transform themselves into multinationals. (Cemex said Monday it is > > negotiating to acquire a 30 percent stake in Rizal Cement Co. of the > > Philippines.) Both Cemex and Pulsar borrowed heavily to buy foreign > > companies, but now they can defend their home markets by threatening > > U.S. and European rivals in markets around the world. Cemex Chairman > > Lorenzo Zambrano calls it ``retaliatory capacity,'' and it is > > something nearly all Mexican executives covet today. > > > > But most Mexican families that created today's big corporations know > > that foreign expansion is risky and requires sophisticated management. > > So they are running to the bear hug of multinational partners not only > > in self-defense but also to gain access to technology, management > > expertise and insight into global markets. > > > > One surprising deal in progress is the purchase of a 50.2 percent > > economic interest in Grupo Modelo SA, which brews Corona beer, by > > Anheuser-Busch Cos. for $1.6 billion. Modelo's corporate offices > > recently displayed a photograph of French President Jacques Chirac > > enjoying a Corona over lunch in France, just one of the 130 countries > > to which Corona is exported. With rising overseas sales enabling > > Modelo to accumulate a $380 million cushion of cash, the families that > > own the company don't need the St. Louis giant's distribution > > capabilities or its money. ``I don't understand why they did this,'' a > > former Modelo executive says. > > > > But in a world where even beer has become a global market, they do > > need Anheuser-Busch's clout. ``Modelo is strong, but they don't think > > they are invincible,'' says Eduardo Cepeda, the chairman of J.P. > > Morgan & Co.'s Mexican subsidiary, Banco J.P. Morgan SA, who advised > > Anheuser-Busch. ``It is one thing to sell beer in many markets, but it > > is another thing to compete with the likes of an efficient > > Anheuser-Busch plant in a free-trade environment,'' he says. > > > > All over Mexico, once-indomitable Mexican dynasties are similarly > > ceding control. The transition is painful but exciting for Mexican > > managers and staffers trying to adjust to the styles of the foreign > > multinationals now employing them. > > > > Solange Lucio, a member of a team of Mexican investment bankers that > > bought a bank in a 1992 privatization and built a financial group > > known as Grupo Financiero InverMexico SA, became the InverMexico > > director responsible for consumer banking. Ms. Lucio then created a > > credit-card joint venture with Household Credit Service Inc., a > > subsidiary of Household International Inc. of Prospect Heights, Ill. > > > > But after the peso devaluation nearly bankrupted InverMexico, the > > company was sold to Banco Santander in 1996. Several of Ms. Lucio's > > partners left, their original investment nearly wiped out. Today, she > > is an executive at what now is called Banco Santander Mexicano, a > > subsidiary of Grupo Financiero Santander Mexicano, but she is no > > longer a director. > > > > ``You know the crisis -- it hurts!'' she says, slapping an empty > > pocket. She recently called the alliance with Household her ``baby,'' > > but she now notes resignedly that the tie was dissolved in April > > because it didn't fit with Santander's strategy. And she hints that > > Santander's aggressive takeover created cultural frictions. But now > > the Mexican bank is emerging from near-collapse, and its new-found > > competitive strength has employees rallying around Santander's > > efforts, ``proud that they are market leaders,'' she says. > > > > Ms. Lucio's story has been repeated countless times at Mexican banks > > battered by the economic crisis. Foreign institutions have full > > control of about 15 percent of Mexico's banking industry plus several > > minority stakes, for a total investment exceeding $3 billion in the > > past two years. The new foreign owners have shattered many of the old > > fraternal links among Mexican bankers and businessmen. This change > > also has created openings for foreign investors. > > > > In the late 1980s, Jaime Bernstein, a Mexican entrepreneur, decided to > > open a glass plant to exploit tequila producers' growing need for > > custom bottles. He took out a loan from Grupo Financiero Probursa SA, > > where he was a shareholder and knew the chairman personally. ``It was > > easy,'' he says. He hoped to repay the loan with a deal he was > > arranging with a U.S. company. That day never came. After the > > devaluation, the rate on Mr. Bernstein's loan soared to 120 percent. > > In three months, he stopped paying. ``We were selling all the bottles > > we produced,'' he says, but the debt payments were eating all the > > profits. > > > > Spain's Banco Bilbao Vizcaya SA took over Probursa in May 1995. Soon, > > the new managers told Mr. Bernstein they were taking legal action > > against him. By then, accumulated interest payments had doubled his > > debt to about $6 million. ``They tried to take our houses ... and our > > cars,'' he says. In frustration, Mr. Bernstein went to see his old > > friend, the Mexican chairman, who kept an office at the bank even > > though control had passed to the Spaniards. Throwing the keys to the > > factory on his friend's desk, Mr. Bernstein said, ``Here, Pepe, take > > the plant.'' But BBV didn't want the plant; it wanted money. > > > > Through another friend, Mr. Bernstein contacted Hicks Muse. Facing > > bankruptcy laws that make foreclosure unappealing, the bank accepted > > $3 million to close the loan, without knowing that the Dallas firm was > > helping Mr. Bernstein restructure the company in exchange for a direct > > stake. > > > > Now, Mr. Bernstein is a minority partner in the glass company he > > founded, but he says he doesn't mind. Hicks Muse is investing in the > > plant, increasing its capacity. ``I had 100 percent of the problems > > and didn't sleep. But now I have 30 percent'' of a profitable > > business, Mr. Bernstein says. ``Besides,'' he adds with a smile, ``I > > don't know how you would say this in business terms, but I like these > > guys a lot.'' > > > > The Wall Street Journal (c) 1997, Dow Jones & Company, Inc. > -- > > > > --
