Desc, S.A. de C.V.

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Desc, S.A. de C.V.

Paseo de los Tamarindos 400-B
05230 Mexico City, D.F.
Mexico
(525) 261-8000
Fax: (525) 261-8098

Public Company
Incorporated: 1973
Employees: 18,880
Sales: 11.98 billion pesos ($1.53 billion) (1996)
Stock Exchanges: Mexico City New York
SICs: 0213 Hogs; Broiler, Fryer & Roaster Chickens; 0273 Animal Aquaculture; 2011 Meat Packing Plants; 2048 Prepared Feeds & Feed Ingredients for Animals & Fowls, Except Dogs & Cats; 2492 Particle Board; 2821 Plastics Materials, Synthetic Resins & Nonvulcanizable Elastomers; 2822 Synthetic Rubber (Vulcanizable Elastomers); 2865 Cyclic Organic Crudes & Intermediates, & Organic Dyes & Pigments; 2891 Adhesives & Sealants; 2895 Carbon Black; 3713 Truck & Bus Bodies; 3714 Motor Vehicle Parts & Accessories; 6552 Land Developers & Subdividers, Except Cemeteries; 6719 Offices of Holding Companies, Not Elsewhere Classified

Desc, S.A. de C.V. is one of Mexico’s largest industrial conglomerates. Through subsidiaries, it was engaged in 1997 in five business sectors: auto parts; chemicals; consumer uses of such chemical products as adhesives, glues, and sealings; agribusiness; and real estate. Through Unik, a wholly owned subsidiary, it was believed to be the largest independent manufacturer of automotive parts in Mexico. Through its Girsa subsidiary, Desc was the only Mexican manufacturer of phenol and carbon black. Through its Dine subsidiary, Desc believed itself to be the largest real estate developer in Mexico.

1970s Formation

Desc was founded under the name Desc (for Descuento), Sociedad de Fomento Industrial, in 1973, by a group of 42 Mexican investors. Among them was Manuel Senderos Irigoyen, who had acquired a good part of the big brewery Cerveceria Moctezuma from the Bailleres family and had founded the auto parts firm Spicer as a joint venture with Dana Corp. of the United States in 1951. Another was Eneko de Belausteguigoitia Arocena, who held interests in cornmeal, sugar, chemicals, and steel. Still another was Antonio Ruiz Galindo, whose family-owned enterprise, D.M. Nacional, began to make metal products and wooden office furniture in 1929.

Desc was established with initial paid-up capital of 617 million pesos ($49.4 million). The following year it had a 35 percent interest in Industrias Resistol, whose annual sales came to 1.25 billion pesos, or $100 million. This firm was also known as Irsa, or Girsa, acronyms for (Grupo) Industrias Resistol S.A., which had 16 plants in 1976 and was involved in petrochemicals, refrigerators, radio and television sets, and typewriters as well as chemicals. Founded by Rodolfo Patron Tenorio in 1925 to produce starch from tapioca, the enterprise took the Resistol name in 1951. The Mexican subsidiary of Monsanto Corp. took a 40 percent share in 1971.

In addition to its stake in Resistol, Desc in 1974 purchased 40 percent of Spicer, which had sales of 674 million pesos, or $54 million, and 35 percent of Industrias Negromex, a manufacturer of chemicals and plastics with sales of 403 million pesos, or $32.2 million. In all, the new conglomerate had taken an average of 32 percent in eight industrial firms with total sales in 1974 of 2.88 billion pesos ($230.6 million).

Desc began selling shares to the public in 1975. The largest shareholder in 1982 was Fomento de Valores, S.A. de C.V., with 48 percent, followed by Banamex, with 11 percent. The largest individual shareholders were Ruiz and Senderos. Desc was the llth-ranking company in Mexico in 1977 in terms of sales volume. Resistol ranked 33rd among Mexican companies with 3.21 billion pesos ($140.4 million), and Spicer ranked 79th, with 1.15 billion pesos ($50.2 million). By 1979 Desc held an average of 35 percent of the shares of more than 30 enterprises. Among these was Compania Hulera Euzkadi, a manufacturer of automobile tires in which B.F. Goodrich Co.’s Mexican affiliate held a 35 percent stake.

Ruiz Galindo was president of Negromex in 1984. Among its directors were Senderos Irigoyen and his son Fernando Senderos Mestre. Adolfo Patron Lujan was president of Resistol. Members of Resistol’s board of directors that year included Antonio Ruiz Galindo Gomez, Jr., Senderos Irigoyen, Senderos Mestre, Belausteguigoitia, and Roger Patron Lujan. Both firms continued to be profitable despite the debt crisis and peso devaluation of 1982. In 1983 Negromex had net income of 1.53 billion pesos (about $11.4 million) on net sales of 12.67 billion pesos (about $93.9 million). Resistol had net income of 5.21 billion pesos (about $38.6 million) on net sales of 34.33 billion pesos (about $254.3 million). During 1985-1986 Desc sold about six companies that did not contribute to its objectives of obtaining leading-edge technology and developing a strong export base. It also acquired four firms.

Desc: 1987-96

After an impressive reduction in its foreign debt burden, Desc was estimated to be worth $300 million in 1987. In February of that year Novum was formed as the holding company for Negromex. The various operating divisions of Novum were manufacturing and selling synthetic rubber, carbon black, fatty acids, rubber chemicals, other chemicals, and pharmaceutical specialties. The international division included Housmex Inc., a Houston-based North American sales and trading company. Novum was doing business in 27 countries. In 1990 Novum acquired majority control of Hules Mexicanos, a rival firm, thereby increasingly its carbon black capacity from 65,000 to 161,000 metric tons a year and its synthetic rubber capacity from 80,000 to 155,000 metric tons a year.

Desc, with Antonio Ruiz Galindo, Jr., now at the head of the enterprise, had sales of 2,839 billion pesos (about $1.15 billion) in 1989. Spicer and Irsa remained the main units, contributing 40 and 34 percent to sales, respectively. Univasa, an enterprise founded in 1982 to breed poultry, contributed nearly 12 percent. Irsa was 40 percent foreign-owned, Spicer was one-third foreign-owned, and Univasa was 36 percent foreign-owned. Desc as a whole was 29 percent foreign-owned. In 1992 Grupo Irsa closed its least efficient chemicals plants and divested certain products lines. That year, however, Desc bought Monsanto’s stake in the group for about $50 million. In 1994 Desc acquired Politos, S.A. de C.V., Grupo Irsa’s only domestic competitor in phosphate production. The company shortened its name simply to Desc in that year.

Desc continued to do fairly well in the early 1990s, although its profit margin dropped. In 1992 the company had net income of 354.09 billion pesos ($114.4 million) on net sales of 5,158 billion pesos ($1.67 billion). The long-term debt was $125 million at the end of the year. Senderos Mestre was now the chief executive officer. One company in Desc’s hands was Dine, a real estate firm that, starting in the late 1960s, developed Bosques de las Lomas, a five-million-square-meter upper income residential and commercial area at the western end of Mexico City, where Desc itself located its main offices. Dine resumed activities in the 1990s after being inactive for most of the previous decade because of the economic crisis that gripped Mexico following the 1982 peso devaluation. Spicer purchased Transmisiones y Equipos Mecanicos, S.A. de C.V. (Tremec), a Mexican manufacturer of light-duty transmissions, in 1994.

The currency crisis and peso devaluation of late 1994 resulted in a net loss of 1.44 billion pesos ($411.4 million), primarily because of heavy losses in noncash foreign exchange. During 1995 an outstanding performance by the chemicals sector, largely because exports doubled, enabled Desc to record a modest net profit of 329 million pesos ($48.4 million) on net sales of 11.46 billion pesos ($1.69 billion). The company had invested heavily in Grupo Irsa, raising its output to 100 percent of capacity and capitalizing on cheap raw materials and low labor costs to flood the United States and Europe with its products. High interest rates and continuing recession took a heavy toll on Desc’s auto parts and real estate sectors.

Sparked by the North American Free Trade Agreement, the Unik auto parts division did very well in 1996. Exports accounted for almost half of its sales as the division became a premier supplier to Detroit’s Big Three. In October 1996 Spicer agreed to purchase Borg-Warner Automotive Inc.’s unprofitable North American manual transmission business for about $40 million. This business was expected to have sales of about $105 million for the year. Spicer, in July 1997, purchased Dana Corp.’s transmission division. Desc was planning to move the purchased Borg-Warner and Dana plants to its automotive center in Queretaro.

Desc added to its agribusiness holdings in August 1987 by purchasing Corfuerte S.A. de C.V., a Mexican producer of canned vegetables, tomato puree, corn oil, coffee, and other food products. The company had six production plants in Mexico and one in California. Desc paid $89 million for a 95 percent share in Corfuerte, which had sales of $84.6 million in 1996.

Desc recorded net sales in 1996 of 11.98 billion pesos ($1.53 billion) and net income of 1.90 billion pesos ($241.7 million). Chemicals accounted for 44 percent of net sales; automotive parts for 36.8 percent; agribusiness for 13.6 percent; consumer products for four percent; and real estate for 1.8 percent. Exports accounted for 31 percent. The company’s long-term debt was 3.34 billion pesos (about $428 million) in March 1997. The Senderos family held 51 percent of the Class A shares, 40 percent of the Class B shares, and 18 percent of the Class C shares. (Class A shareholders had the right to elect a majority of directors to the company board.)

Company Perspectives:

Desc is: committed to the philosophy of total quality and service excellence; motivation and growth opportunities for our employees; environmental protection and promotion of education and fundamental values in our communities.

DESC in 1996

In 1996 Unik was conducting Desc’s automotive parts business, manufacturing 43 different types of automotive products at 28 plants in Mexico. These included everything from pick-up truck bodies and transmissions to pistons, gaskets, seals, ignition coils, and spark plugs. Spicer accounted for about 51 percent of Unik’s revenue in 1995.

Girsa (Grupo Irsa) was managing all of Desc’s businesses in the chemical sector, manufacturing 31 chemical products at 21 plants. Synthetic rubber, manufactured by Negromex, was its chief chemicals product, followed by phosphates and polystyrene. The phosphates business produced chemicals for use in household detergents, soft drinks, and water treatment. Following, in descending order of 1995 sales, came carbon black, acrylics, natural pigments/animal-food supplements, phenol, emulsions (specialty lattices), and Pharmaceuticals. (The pharmaceuticals business was sold in 1997.) Girsa also administered the consumer products division, which consisted chiefly of glues and adhesives under the Resistol name and waterproofing sealants under the Fester name. In addition, there were Revoplas and Actriton products, consisting mainly of acrylic coatings.

The Agrobios subsidiary was conducting Desc’s agribusiness activities at 156 farms, installations, and plants through two subsidiaries: Univas and Holding Aquanova. Univasa was engaged in the production and sale of poultry, pork, and animal feed. Aquanova was engaged in the production and sale of shrimp. Desc believed it was the largest producer of broiler chickens in southeastern Mexico. Its market share of animal feed was also largest in this area, where most of its feed mills were located. Most of the feed was for the company’s own chickens and hogs. Shrimp production facilities were situated in the states of Sinaloa and Nayarit, but the business was still in the developmental stage.

Dine, the real estate subsidiary, was believed to own the largest land reserves for residential development in the Mexico City metropolitan area. Focusing on the upper income segments of the market, it also owned properties for tourism development along the Caribbean and Pacific coasts of Mexico. Its biggest holdings in size were in Punta Mita, Nayarit, and (with others, including Senderos family members) Ranchos La Estadia, an area in a high-income residential suburb of Mexico City. During 1996 Dine completed Arcos Torre I of the Arcos Bosques Corporativo complex in Mexico City, making it the largest business center in Latin America. Reaching a height of 160 meters (525 feet), Arcos Torre I was Mexico’s second tallest building.