Pulsar Internacional S.A.
Pulsar Internacional S.A.
Edificio Torre Alta
Avenido Roble 300
Garza García, Nuevo Leon
Fax: (528) 335-7169
Sales: 5.96 billion pesos (US$1.69 billion) (1994)
SICs: 0721 Crop Planting, Cultivating and Protecting; 0811 Timber Tracts; 2111 Cigarettes; 2121 Cigars; 2131 Chewing and Smoking Tobacco and Snuff; 2557 Folding Paperboard Boxes, Including Sanitary; 2671 Packaging Paper and Plastics Film, Coated and Laminated; 2836 Biological Products, Except Diagnostic Substances; 3271 Concrete Block and Brick; 3553 Aluminum Sheet, Plate and Foil; 6211 Security Brokers, Dealers and Flotation Companies; 6311 Life Insurance; 6321 Accident and Health Insurance; 6331 Fire, Marine and Casualty Insurance; 6719 Offices of Holding Companies, Not Elsewhere Classified
Pulsar Internacional S.A. (sometimes called Grupo Pulsar) is a Mexican holding company with major interests in tobacco, packaging, produce, and insurance. In 1997 Seminis was the world’s largest vegetable-seed company, Seguros Comercial America was the largest insurance company in Latin America, and Empresas La Moderna included Mexico’s largest cigarette manufacturer and distributor. Pulsar’s holdings also included Vector Casa de Bolsa, a brokerage house and investment-banking firm. Alfonso Romo Garza, Pulsar Internacional’s chairman and chief executive officer, founded the company and, with family members, held a majority stake in the enterprise. Although a private company, Pulsar Internacional included at least four publicly traded companies: Empresas La Moderna, Seguros Comercial America, Empaques Ponderosa, and Vector Casa de Bolsa.
A descendant of Mexico’s wealthy Madero family, Alfonso Romo Garza received a degree in agricultural engineering from Monterrey Technological Institute in the early 1970s. Despite his matronym, he was not related to Monterrey’s rich and influential Garza Sada clan, but he married the daughter of Alejandro Garza Laguerra, the director general of Mexico’s biggest brewery. Romo founded Pulsar in 1981 but, after arranging a leveraged buyout of several bakeries, was cleaned out by the economic crisis that followed the sudden descent of the peso in 1982.
Romo’s fortunes turned around in 1985 when an old schoolmate approached him to ask if he might be interested in acquiring control of Empresas La Moderna, whose chief unit was Cigarrera La Moderna, Mexico’s leading producer of cigarettes. This firm’s shares were being purchased by Carlos Slim Helú, founder of the group that controlled Cigatam, Moderna’s chief competitor. Slim seemingly wanted to avoid antitrust problems but, according to critics, really intended to create another of Mexico’s many “duopolies”—industries controlled by two entrepreneurs offering little competition in price or quality. Romo, acting with his father-in-law and other investors, purchased a controlling share of Empresas La Moderna for $40 million.
Pulsar’s next major ventures were the acquisitions of the brokerage house Vector Casa de Bolsa in 1986 and the insurance company Seguros America in 1989. Romo’s attention then turned to advanced methods of agriculture, using the resources of Empresas La Moderna to acquire several biotechnology companies. In 1997 Pulsar sold at least part of Cigarrera La Moderna to finance further biotechnology ventures. Romo’s personal fortune was estimated at $1.4 billion in 1996.
Cigarrera La Moderna, 1936-97
Cigarrera La Moderna was founded in 1936 by British American Tobacco Co. Ltd. (BAT), which had a large share of world cigarette production and marketing, to produce higher-priced cigarettes than those of Cigarros El Aguila, which it also controlled and which had been established in 1924. The company went public in 1964. In 1974 La Moderna was producing 32 percent of Mexico’s cigarettes and had 43 percent of sales in this sector. In 1976 it acquired the second-place producer, El Aguila. La Moderna’s share of the cigarette market now reached 66 percent in production and 75 percent in sales. It was Mexico’s 14th largest company in 1977, with sales of 6.32 billion pesos (US$277 million).
The relationship with BAT soured in 1985, when over the British company’s objections La Moderna entered into a licensing agreement with R.J. Reynolds Tobacco International Inc. to produce Camel and Salem cigarettes in Mexico. The bitter dispute between the partners, which also involved managerial control, ended in 1989, when BAT sold its 45 percent interest for 215 billion pesos (US$81.5 million). In 1991 R.J. Reynolds and La Moderna entered into a joint venture that authorized the latter to make and sell Winston as well as Camel and Salem cigarettes in Mexico.
Cigarrera La Moderna also was producing four of Mexico’s six leading brands: Raleigh, Fiesta, Montana, and Alas and had licensed agreements covering manufacturing with other business partners, including Alfred Dunhill Ltd. (Dunhill) and SEITA (Gitanes Blondes and Milds). It held 54 percent of the domestic market in 1997. The company also was marketing smokeless tobacco products under the brand names Copenhagen and Skoal through a franchise by U.S. Tobacco Co. and cigars under the brand name CruzReal.
In July 1997 BAT (now BAT Industries) agreed to acquire at least 50 percent of Cigarrera La Moderna, plus two voting shares. A six-month option would give BAT the opportunity to purchase the entire company. If so, BAT would pay $1 billion in cash, assume $212 million in debt, and extend Cigarrera La Moderna’s parent, Empresas La Moderna (ELM), a $500 million loan payable in three years. Otherwise, an ELM official said, the parent company would keep its minority share and the $1.5 billion would be invested in Cigarrera La Moderna. Romo indicated that his main objective was to obtain cash to extend ELM’s presence in the biotechnology area.
Empresas La Moderna, 1980-97
Another subsidiary of Empresas La Moderna, Aluprint, established in 1980, became a market leader in the production and printing of flexible and hard packaging. It acquired territorial rights for Mexico and Central America to the Aluglass process—new technology making available the printing and production of high-quality metalized flexible and hard packaging material to the parent company as well as to multinational companies operating in Mexico and other parts of Latin America. Aluprint had sales of 146 million pesos ($42 million) in 1994. It was merged into another ELM subsidiary, Empaques Ponderosa, in 1996.
In 1990 Mexico ended state controls on tobacco farming and marketing, and constitutional reforms in 1992 allowed the private sector to become involved in agribusiness for the first time in more than 70 years. By the end of 1993 ELM, which was part of Pulsar Internacional’s industrial division, had taken a major role in agribusiness, based on its expertise in the growing and processing of tobacco. That year it acquired majority control of Agricola Batiz, a leading producer, marketer, and distributor in Mexico of fresh fruits and vegetables. Between late 1994 and early 1996 ELM spent more than $480 million for control of three seed and biotechnology companies. One of these was Asgrow Seed Co., purchased from Upjohn Co. The others were Petoseed Corp., a division of George C. Ball Co. of California, and the Dutch seed company Royal Sluis. These acquisitions, merged into its 62 percent-owned Seminis, Inc. subsidiary, gave La Moderna 22 percent of the world fruit-and-vegetable-seed market.
Empresas La Moderna also, in December 1994, acquired majority control of International Produce Holding Co. (IPHC), whose subsidiaries were marketing and distributing fresh produce worldwide. In late 1996 it combined Agricola Batiz and IPHC with DNA Plant Technology Corp., a California company specializing in genetically engineered food enhancement with whom it had merged, to form DNAP Holding Corp., in which it held 70 percent of the stock. In February 1997 La Moderna formed a technology agreement with Monsanto Co. allowing DNAP to use Monsanto’s technology to develop enhanced fruits and vegetables through genetic engineering. The agreement was part of a deal that included the sale of Asgrow’s grain-seed business to Monsanto for $240 million.
The $280 million Asgrow acquisition was made with a $325 million bridge loan whose $180 million financing from Mexican banks was jeopardized by the financial crisis that followed the fall of the peso in December 1994. Nevertheless, in November 1995 Empresas La Moderna received a $130 million syndicated loan, an expression of international confidence. By 1996 some 43 percent of La Moderna’s agribusiness and tobacco revenues were coming from foreign operations or exports, compared to just 5 percent three years earlier.
Now one of the largest producers and distributors of fresh produce as well as tobacco in Mexico, Empresas La Moderna was providing seeds, irrigation, new tractors, harvesting equipment, and interest-free loans to Mexican farmers, with shared profits. The operation, involving some 7,000 small farmers on 30,000 acres in 1995, produced, in addition to 95 percent of the company’s tobacco, fruits, and vegetables to be exported to the United States under the “Master’s Touch” brand. Research stations established in the state of Chiapas were developing disease-resistant strains of mango, papaya, mamey, and guayaba, fruits Romo believed would become popular abroad. This laboratory also was producing pest-eating insects. The company also maintained a station in the state of Mexico for research in developing blight-resistant potatoes.
Another company unit, Desarollo Forestal, acquired 300,000 hectares (about 125,000 acres) of woodland in the states of Tabasco and Campeche in 1993 for lumber production. It had planted eucalyptus, acacia, and gmelina on 1,000 hectares (400 acres) by 1997 and was planning an investment of $350 million in the further development of these lands.
Still another important sector of Empresas La Moderna’s business was Ponderosa Industrial, a holding company which, through its subsidiaries, was engaged in the production and sale of pulp and paper, packaging, and industrial products. La Moderna became this company’s majority shareholder in November 1994. Ponderosa Industrial’s subsidiary Empaques Ponderosa was Mexico’s leading manufacturer of folding box-board, which it produced from recycled materials. In late 1996 Ponderosa Industrial and Empaques Ponderosa merged, with Ponderosa Industrial surviving but changing its name to Empaques Ponderosa. Pulsar’s stake in the enterprise subsequently fell from 51 to 29 percent, according to a German source.
Empresas La Moderna’s net sales totaled 14.32 billion pesos (US$1.87 billion) in 1996. Of the total, cigarettes accounted for 46 percent, seeds for 34 percent, fresh produce for 11 percent, and packaging for 9 percent. Net income came to 8 percent of this total. The company’s long-term debt was 2.82 billion pesos ($357.4 million).
Seguros Comercial America, 1933-96
Seguros Comercial America, an insurance company, was formed from the 1993 merger of Seguros America and Seguros La Comercial. Seguros America was established in 1933 as America Latina, Compañia General de Seguros and was incorporated by Banamex in 1969, changing its name to Seguros America Banamex and subsequently to Seguros America. Seguros La Comercial was established in 1936 and acquired by Pulsar Internacional in 1989 when it was nearly bankrupt. In 1993 it had a sales force of about 5,000 agents operating from 300 branches across the country and over 20 claims offices operating from major cities throughout Mexico. It was the first Mexican insurer to establish a liaison office in New York City.
The merged company was providing insurance policies and services for individuals and businesses in all lines, including life, accident, health, and property/casualty. It maintained about 700 branch offices throughout Mexico in 1995. In 1996 the company acquired 70 percent of Aseguradora Mexicana (Asemex), the second largest underwriter in Mexico, from the Mexican government for 955 million pesos (about US$129 million), giving it 84 percent of Asemex’s shares. This acquisition made Seguros Comercial America the largest insurance company in Latin America, with a 32 percent market share in Mexico. Premium income came to 3.86 billion pesos (US$1.1 billion) in 1994. Net income was 213.8 million pesos (US$61.1 million).
Vector Casa de Bolsa, 1974-97
Founded in 1974 and acquired by Pulsar in 1986, Vector Casa de Bolsa by 1993 was providing a wide range of financial services, including securities underwriting, distribution, trading, asset management, mergers and acquisitions, corporate restructuring, and other advisory corporate-finance activities, and real-estate advice, financing, and investments. It also formed and managed a family of funds. In 1993 the company established an international arm with New York-based Vectormex Inc. Vector Casa de Bolsa lost about $21.8 million in 1995. Romo, the majority owner, and other shareholders had to raise $55 million to cover losing positions in that year, a disastrous one for Mexican business following the devaluation of the peso in December 1994. In 1996 Vector had net income of 4 million pesos (about US$525,000) on revenues of 1.07 billion pesos (US$140 million).
Other Pulsar Ventures, 1993-97
In 1994 Pulsar allied itself with Hebel International, a German company making aerated concrete blocks for construction. Pulsar secured a concession for Latin America and China to build large housing tracts with these durable and light blocks, which were said to be capable of assembling homes in about one-third of the time compared to traditional methods in Mexico. By 1996 Contec Mexicana, a joint investment 90 percentowned by Pulsar, had built 6,000 homes in Mexico using this block and also had constructed a number of commercial facilities, including a hotel in Atlanta.
In 1994 Pulsar acquired a 15 percent stake in the British fixed-wireless telephony company Ionica for $22.5 million, securing licensing rights for Mexico and a “priority” for all of Latin America. Fixed-wireless telephones use a digital-radio frequency that can also ship video and other types of electronic information and can be installed faster and cheaper than ordinary telephone lines. They are also cheaper and less complicated than cellular phones, which also use radio waves. Romo claimed his concession had the capacity to deliver telephone service at savings as high as 40 percent for Mexicans and would focus on rural areas, where installing lines would be extremely costly.
Organización Orbis was established in 1993 to develop personal-care items, cosmetics, and biodegradable household-cleaning accessories from Mexican plants through biotechnology. Based in the state of Nuevo Leon, this enterprise included a laboratory. Orbis products were reaching 200,000 Mexican families in early 1997 and had sales in excess of $12 million in 1996.
Empresas La Moderna, S.A. de C.V., including Empaques Ponderosa, S.A. de C.V. (51%), and Seminis, Inc. (62%); Seguros Comercial America, S.A. de C.V.; Vector Casa de Bolsa, S.A. de C.V.
Crawford, Leslie, “ELM’s Grand Plan Comes into Focus,” Financial Times, May 20, 1997, p. 30.
——, “The Big Draw for Cigarette Companies,” Financial Times, July 28, 1997, p. 19.
Gonzalez Sierra, Jose, Monopolio del humo. Xalapa: Universidad Veracruzana, 1987, pp. 23-39.
Hall, Kevin G., “Mexico’s Seguros OKs Merger,” Journal of Commerce, November 15, 1996, p. 8A.
Hernandez Martinez, Luis, “Orbis, la gema de Pulsar,” El Financiero, January 28, 1997, p. 12.
Jennings, John, “Largest Mexican Ins. Market Merger Completed,” National Underwriter (Property/Casualty), May 13, 1996, p. 41.
Johns, Richard, “BAT Severs Mexican Links with L52m Joint Venture Sale,” Financial Times, November 30, 1989, p. 28.
Leal, Alba, “Contect Mexicana: De Boca en Boca,” Expansion, June 19, 1996, pp. 61-62.
“Pulsar Internacional: Mexico’s Best-Kept Secret,” Latin Finance, July 1993, pp. S10-S14.
Smith, Geri, “The Star Behind Mexico’s Pulsar,” Business April 1, 1996, pp. 67-68.
Torres, Craig, “Telmex Monopoly to Face Fight from Wealthy Mexican Investor,” Wall Street Journal, May 3, 1994, p. A10.
——, “B.A.T Plans to Buy Cigarette Business of Mexico’s ELM,” Wall Street Journal, July 23, 1997, p. A14.
Tovar, Gabriela, and Bordón, Alejandra, “Industria Forestal: Llego la Hora?” La Reforma, May 2, 1997, pp. 23, 31.