Valores Industriales S.A.

Valores Industriales S.A.

Cuauhtemoc 400 Sur
64000 Monterrey, Nuevo Leon
Mexico
(528) 345-4400

Public Company
Incorporated: 1936
Sales: 15.52 billion pesos ($2.28 billion, 1995)
Stock Exchanges: Mexico City
SICs: 2082 Malt Beverages; 2086 Bottled and Canned

Soft Drinks and Carbonated Waters; 2657 Folding Paperboard Boxes, Including Sanitary; 2671 Packaging Paper and Plastics Film, Coated and Laminated; 3221 Glass Containers; 3411 Metal Cans; 3581 Automastic Vending Machines; 5499 Miscellaneous Food Stores; 6719 Offices of Holding Companies, Not Elsewhere Classified

The holding company Valores Industrials S.A. (better known in Mexico as Visa) is one of the largest businesses in Mexico. Through a subsidiary, Femsa, it is the nation’s biggest brewer and producer of soft drinks. The company also, in 1995, operated 677 convenience stores in Mexico and engaged in the production and sale of packaging products to third parties.

Antecedents of Visa, 1890–1936

Cerveceria Cuauhtemoc, a Monterrey brewery, was founded in 1890 by Isaac Garza Garza, his brother-in-law Francisco Sada Muguerza, Jose Muguerza, and Jose Maria Schneider with capital of 150,000 pesos. In the beginning this brewery produced 1,500 bottles of beer and two tons of ice per day. Cerveceria Cuauhtemoc produced its first beer barrel in 1893 and made its mark in this period by winning first prize in the Chicago and Paris world fairs. A subsidiary, Cerveceria Central, was established in 1901 to supply Mexico City and the surrounding states.

In 1903 Cerveceria Cuauhtemoc was producing 80,000 bottles of beer a day and 100,000 barrels a year, and in 1909 it was producing 300,000 of each and employing 1,500 workers. By then the enterprise had expanded vertically, with factories to provide the glass, paper, cartons, and corks. Vidrios y Cristales de Monterrey S.A., established in 1899, became Vidriera Monterrey, S.A. in 1909, when it acquired the Owens patent for mechanical fabrication of glass bottles. Fabricas de Carton Monterrey was established in 1900 to produce boxes, bottle caps, and packaging materials of all kinds.

Cerveceria Cuauhtemoc suffered a potentially fatal blow when its founders backed Victoriano Huerta in the power struggle that followed the overthrow of Porfirio Diaz as president of Mexico in 1910. When the forces of Venustiano Carranza defeated Huerta in 1914 they seized the brewery, its owners having fled to Texas. The property was restored through the intervention of U.S. and Russian diplomats, but amid the anarchy of the revolution, the company’s beer production fell from 16.5 million liters in 1912 to less than 3.4 million in 1914 and 1915 combined. The company’s beer production did not fully recover until the mid-1920s.

Despite these problems, the founders and their children were contributing to the economic development of Monterrey. Isaac Garza’s sons Eugenio and Roberto Garza Sada, graduates of the Massachusetts Institute of Technology, founded a technical school that became the precursor of Monterrey’s Technological Institute. The brewery and its subsidiaries founded a civic association, a workers’ group, and clinics, nurseries, and schools for the children of the workers. The Sociedad Cuauhtemoc, founded in 1918, established a one-stop familial service for workers that included company stores and a savings plan as well as the aforementioned benefits. The brewery’s working day was reduced from 12 to nine hours in 1907.

During the 1920s a crown top was developed to replace the corks previously used for beer bottles. Responsibility for this function was turned over in 1929 to a new enterprise, Fabricas Monterrey S.A. (Famosa), which subsequently diversified into other products needed by the brewery, including metal containers and corrugated boxes, which had been introduced in 1926. Also in 1929, Malta, S.A. was established to produce malt for the brewery. Metal vats replaced wooden ones in 1930, making possible the pasteurization of beer.

Cerveceria Cuauhtemoc successfully adjusted to the Depression conditions of the 1930s and the leftist direction of the federal government under President Lazaro Cardenas. Beer shipments, after sinking to 14.4 million liters in 1932, reached 24.3 million in 1934—when the company was producing about 40 percent of the beer in Mexico—and 54.7 million in 1940. The Garza and Sada families were instrumental in the creation of a national employers’ confederation. This group established a tame labor federation in order to forestall the development of a more militant group. In this way, and through its paternalistic welfare system, Cerveceria Cuauhtemoc avoided strikes.

Creation and Development of Visa, 1936–1974

By 1936 the holdings of the Garza and Sada families and their associates had been divided into two groups: the Cuauhtemoc (brewery) group and the Vidriera (glass) group. While descendants of Isaac Garza and Francisco Sada continued to hold shares within each group, management of the former was largely the responsibility of the Garza Sada family, particularly Eugenio and Roberto Garza Sada, while their cousins—sons of Francisco Sada Muguerza—were in charge of the latter. In that year the family’s holdings were reorganized, with Valores Industrials S.A. (Visa) created as a holding company controlling the majority of shares of the firms formerly held by Cuauhtemoc, especially Cerveceria Cuauhtemoc and Famosa.

After two years of reorganization, the Visa group consisted of 12 companies, including Visa itself, Famosa, four breweries, Malta, a packaging company, a technical-services firm, a distribution company, and two financial agencies. One of the latter was Compania General de Aceptaciones, established in 1936 to facilitate financial transactions among the various companies controlled by the Garza and Sada families. Compania General de Aceptaciones took a large stake in one of Mexico’s leading banks, the Banco de Londres y Mexico.

Hojalata y Lamina, S.A. (Hylsa) was founded by Visa in 1943 to produce steel sheet for metal bottletops during World War II, when supplies from the United States were cut. It subsequently expanded into a fully integrated steel complex, its activities ranging from iron-ore mining and processing to finished steel products. Hylsa became Mexico’s second-largest steel producer and its largest private steel producer. In 1965 it was the second-largest private industrial company in Mexico, while Cerveceria Cuauhtemoc was third.

Cerveceria Cuauhtemoc introduced metal cans, the first in Mexico, in 1954. Another Visa subsidiary, Grafo Regia, S.A., was founded in 1957 to meet the company’s needs for printing and other graphics materials. Visa dominated the bottling industry through its subsidiary Fomento Economico Mexicano S.A. de C.V. (Femsa). By 1970 Visa contained 90 subsidiaries and had 33,508 employees. By another count, it had 135 enterprises and 114 factories and branches.

Prosperous 1970s, Difficult 1980s

Eugenio Garza Sada was assassinated in 1973 in what was described as a botched kidnapping by left-wing guerrillas. Without his unifying influence, the Monterrey Group split from two to four units the following year: Visa, Grupo Industrial Alfa, Fomento de Industria y Comercio, or Fie (the former Vidriera Monterrey, soon to be renamed Vitro), and Cydsa, a chemicals complex formerly under Fie. Alfa received Hylsa, while Visa retained the brewery business and its stake in the Banco de Londres and its affiliated institutions. Eugenio Garza Laguera, a son of Eugenio Garza Sada, became chairman of Visa. Although the four holding companies were managed independently by different branches of the family, the Monterrey Group presented a united front in dealings with the Mexican government.

Visa grew mightily in the prosperous 1970s, a decade in which Mexico boomed because of sharply higher prices for its oil exports. Net sales rose from 4.15 billion pesos ($332 mil-lion) in 1974 to 17.82 billion pesos ($782 million) in 1979. Employment reached a peak of 34,859 in 1981, when net sales were 38.52 billion pesos ($1.57 billion). By this time Visa had no less than 174 subsidiaries. Having bought a chain of Hyatt hotels, its interests now included construction, real estate, tourism, animal feed, and plastics, besides its anchor beer and packaging enterprises and the soft-drink and mineral-water operations it began in 1979. The latter units enjoyed nearly half the cola sales in the greater Mexico City metropolitan area and more than half in Mexico’s Southeast.

When oil prices fell in 1981, Mexico’s economic boom, financed with borrowed money, came to a screeching halt. Visa found itself more than $1 billion in debt the following year, and the federal government nationalized Banca Serfin—the nation’s third-largest bank—in which Visa held a 77 percent stake. The nondeposit banks and associated financial companies in Grupo Financiero Serfin, not nationalized, were reorganized into a new financial-services group called Valores de Monterrey (Vamsa). Vamsa’s life-insurance subsidiary, Seguros Monterrey, was the largest in Mexico.

Visa reduced its holdings to pay its debts, falling to “only” 101 subsidiaries, but in 1986 it notified four major banks it would not be able to make further payments. Nevertheless, the company in 1985 acquired Cerveceria Moctezuma S.A., a rival brewer, in bankruptcy court. The transaction gave Visa at least 50 percent of the national beer market, although the federal government was a partner in the Moctezuma acquisition.

Adding to Visa’s problems was dissatisfaction within the extended family. Javier Garza Calderon, who owned 45 percent of the holding company, tried unsuccessfully to wrest Visa from Eugenio, David, and Alejandro Garza Laguera, who controlled the rest. He filed several suits charging Eugenio with mishandling the administration of the conglomerate but was ultimately unsuccessful in winning control. In 1991 Garza Calderon’s father, Javier Garza Sepulveda, tried to gain control of Visa through his Grupo Center. He also failed but made a big profit by selling his family’s stock back to Visa for $428 million.

In 1988 Visa bought back $1.5 billion of its $1.7-billion foreign debt from 48 banks by paying an average of 30 cents on the dollar. The restructuring involved giving creditors about 20 percent of Femsa’s equity. Visa offered 20 percent of the shares to the public and retained the other 60 percent. Visa also sold its hotels for $97 million and its share in a joint venture with Ford that was making plastic dashboards.

Visa in the 1990s

When Mexico’s nationalized banks were fully reprivatized in 1991, a group of investors from Vamsa, headed by Eugenio Garza Laguera and Ricardo Guajardo, bought (through Grupo Financiero Bancomer) a 51 percent stake in Bancomer, Mexico’s second-largest bank, and the stock-brokerage firm Acciones Bursatiles, for $2.55 billion, of which J.P. Morgan provided a $1-billion syndicated loan. Femsa took a 34 percent stake in Grupo Financiero Bancomer. Following this acquisition, Serfin regained most of Vamsa’s subsidiaries, but Vamsa continued to be the parent company for Seguros Monterrey and Fianzas Monterrey.

Eugenio Garza Laguera became chairman of Bancomer, which was in far better financial shape than Visa’s previous financial arm, Serfin, which was sold to another branch of the Garza Sada extended family. In 1995 Bancomer formed a partnership with GTE to compete in the Mexican long-distance telephone market, in association with AT&T and Spain’s Telefonica, when the monopoly held by Telefonos de Mexico ended in 1997. Alfa subsequently also joined this partnership.

In 1992 Visa sold Femsa’s mineral-waters business to Cad-bury Schweeppes for $325 million and an 11 percent stake in Femsa for $215 million. It sold 30 percent of Femsa’s soft-drink business to an indirect subsidiary of The Coca-Cola Co. in 1993 for $195 million. In 1994 it sold a 22 percent share of Femsa’s beer business to John Labatt Ltd. of Canada and signed an agreement with Labatt to associate their respective companies in the United States. During 1992–93 Visa also opened 267 convenience stores in Mexico under the Oxxo name. By the end of 1995 there were 677 Oxxo stores in 17 of Mexico’s largest cities. They were being administered by Femsa’s retail division.

Femsa remained the heart of the Visa conglomerate. Publicly traded, this subsidiary accounted for nearly 60 percent of Visa’s net sales in 1995. Its holdings included a publicly traded subsidiary of its own, Coca-Cola Femsa, whose net sales came to almost two-thirds of the parent Femsa company. (In 1994 Mexico’s per-capita consumption of Coke was higher than that of any other country, even the United States.)

Femsa was producing and marketing beer under the brand names Superior, XX Lager, Tecate, Tecate Light, Indio, Heineken, Sol, Bohemia, and Carta Blanca, and soft drinks under the names Coke, Diet Coke, Fanta, Sprite, Sin Rival, and Extra Poma. It was exporting these beverages to 63 countries and also producing beer and food cans, crown caps, glass bottles, labels and wrappers, cardboard boxes, soft-drink cases, refrigerators, and vending machines. Its Coca-Cola business held the franchise in the Mexico City metropolitan area, southeastern Mexico and, through a subsidiary, metropolitan Buenos Aires, Argentina.

During 1994, a year that ended in a new Mexican economic and financial crisis, Visa lost 775 million pesos ($221 million). In 1995 it posted net income of 204 million pesos ($30 million). Visa ended the year with 7.26 billion pesos ($1.06 billion) in long-term debt. The Garza Laguera family fortune, although considerably reduced by the economic crisis, was valued in 1996 at $1.1 billion. (In 1992 the family owned around 40 percent of Visa and 30 percent of Vamsa through Grupo Proa, a privately held holding company). Eugenio Garza Laguera was chairman of Visa, Vamsa, Femsa, and Coca-Cola Femsa, as well as Bancomer.

Principal Subsidiaries

Fomento Economico Mexicano, S.A. de C.V. (Femsa); Visa Bioindustrias, S.A. de C.V. (Bioindustrias).

Further Reading

Baker, Stephen, “Out from Under a Pile of Debt,” Business Week, November 7, 1988, p. 54.

Concheiro, Elvira, et. al., El poder de gran burgesia, Mexico City:

Ediciones de Cultura Popular, 1979, pp. 51–131.

Fuentes Mares, Jose, Monterrey, una ciudad creadera y sus capitanes, Mexico City: Editorial Jus, 1976, pp. 128–147.

Hamilton, Nora, The Limits of State Autonomy: Post-Revolutionary Mexico, Princeton, N.J.: Princeton University Press, 1982, pp. 307–316.

“Mexican Conglomerate Acquires Major Brewery,” Wall Street Journal, July 22, 1985, p. 22.

“Mexico’s Family Groups Struggle with Changes As New Powers Ascend,” Business Latin America, May 4, 1987, pp. 138–139.

Morales, Miguel Angel, “El Grupo Monterrey vs. La Familia Revolucionaria,” Revista de Revistas, December 22, 1982, pp. 14–17.

Moreno Hernandez, Wolfrano, El Grupo Financiero Visa-Serfin, unpublished thesis, Universidad Autonoma Metropolitana, Mexico City, 1986.

Palmeri, Christopher, and Kerry A. Dolan, “A Tough New World,” Forbes, July 17, 1995, pp. 122–124.

Poole, Claire, “The Resurrection of Don Eugenio,” Forbes, February 17, 1992, pp. 102, 106.

Saragoza, Alex N., The Monterrey Elite and Mexican State, 1880–1940, Austin: University of Texas Press, 1988.

Vizcaya Canales, Isidro, Los origines de la industrialization de Monterrey, Monterrey: Institute Technologico y Estudios Superiores, 1971.

—Robert Halasz