ALFA (Mexico)
Encyclopedia
ALFA is a Mexican conglomerate
composed of four business groups: Alpek
(petrochemicals), Nemak (aluminum components), Sigma Alimentos
(foods) and Alestra (electronics and telecommunications).
ALFA is the world's leading manufacturer of high-tech aluminum engine heads and blocks through its subsidiary Nemak. It is one of the world's largest producers of PTA
, a petrochemical product, and has an outstanding position in the market for other petrochemicals in Mexico. In addition, ALFA is the leader in the production of processed meats and cheese and one of the most important telecommunications service companies in Mexico.
ALFA shares are quoted on the Mexican Stock Exchange and Latibex, the Latin American market in the Madrid Stock Exchange.
, in 1890 by Isaac Garza Garza, his brother-in-law, Francisco Sada Muguerza, and two others. In 1936 the family holdings, already vast, were divided into two separate iindustrial
groups. One of these, Valores Industriales S.A. (Visa), established Hojalata y Laminas S.A. (Hylsa) to make steel sheet for the bottle cap
s of its beverages during World War II, when the United States cut steel
supplies to Mexico to meet its own needs. Hylsa became the largest privately run steel mill
in Mexico, a fully integrated complex with activities ranging from mining and processing iron ore to finished products. In 1957 it patented HyL, a system of direct reduction known as fire sponging.
One of the two heads Eugenio Garza Sada
,of the Monterrey Group, was murdered in 1973 in what was described as an abortive kidnapping
by left-wing terrorists, but before this happened, he and his brother Roberto Garza Sada divided the company into two parts. Bernardo Garza Sada
, Roberto's son, became chairman of Grupo Industrial Alfa, S.A., which inherited Hylsa and many other industrial enterprises, including Empaques de Carton Titan, a packaging company founded in 1926; Nylon de Mexico (synthetic fibers), founded in 1952; and Polioles (chemicals), founded in 1962. "There is no falling out", one source explained to the New York Times. "But there was a real problem as to who would be next 'supreme,' so they juggled the shares within the family and divided the group."
Under Bernardo Garza Sada's leadership Alfa diversified from its base into petrochemicals, synthetic fibers, capital machinery, farm equipment
, television set
s, and tourism
. It also took a quarter share in Grupo Televisa, which virtually monopolized Mexican television broadcasting. Its assets grew from $315 million to $1.5 billion between 1974 and 1978, its sales from $194 million to $836 million, and its income from $21 million to $83 million. In 1978 Alfa was the only Mexican company in the Fortune 500
list of the biggest companies outside the United States, except for state-owned Petroleos de Mexico (Pemex
). Himself a graduate of the Massachusetts Institute of Technology
, Garza Sada staffed top management with graduates of MIT, Harvard, and the University of Pennsylvania
's Wharton School of Business. One observer said they "always picked the kid with the Harvard MBA over the guy who really knew the business. The Alfa man had to look good on paper."
Although Alfa formed joint ventures with Hercules and American Petrofina to produce polyester
, Du Pont to produce other synthetic fibers, Ford to turn out aluminum cylinder heads, and Hitachi to make electric motors, it insisted on control. "We manage these ventures, always", Garza Sada told Forbes in 1979. "We demand that!" Alfa received $2.4 billion in loans from more than 130 foreign creditors and was planning to invest $3.5 billion by the end of 1984, almost three-fifths of it in money to be borrowed, mostly from sources outside Mexico. It was not only the leading private firm in Mexico but in all of Latin America. By 1980 it had 157 subsidiaries in 39 branches of the economy.
In retrospect, following Alfa's near-bankruptcy
in 1982, Alfa's success bred arrogance. Many of the lower-management people had no practical experience, while the experienced upper management took charge of firms about which they knew very little. The company unwisely abandoned its prudent traditional policy of only integrating firms that had similar or complementary products. One observer said that Alfa "bought businesses like someone would buy candies for their children." A foreign bank representative recalled, "They were on the same kind of roll that the Mexican government was on then. Oil prices would know no limit. Grupo Alfa profits
would know no limit."
for the year from $80 million to $2 million. By the end of the year it was predicting a $60 million loss and it finally reported an actual loss of $120 million. Before the year was out the government had extended Alfa an emergency aid package of 12 billion pesos ($480 million). In 1982 the Mexican economy
hit the rocks. Largely because of the collapse of the peso and heavy interest obligations, Alfa lost $233 million and suspended principal as well as interest payments. In July 1982 it presented a restructuring plan that called for it to sell one-fourth of its assets over a five-year period. The corporate staff was slashed from 4,000 to 1,000, and later to 400. Manufacturing
ventures in television sets, bicycles, and tractors were sold.
Eventually, in 1986, Alfa paid off about five dozen foreign banks in stock
. Under a complex arrangement, the creditor banks forgave $920 million in Alfa's debt
in return for 45 percent of its stock. A 15-member board was named to govern the company, of which nine would be named jointly by the foreign banks and the Garza Sada family. A five-year voting trust for the stock was formed under which 16 percent of the Garza Sada family stock would be held with the 45 percent of the bank stock. The creditors also were paid $25 million by Alfa and $200 million in Mexican government debt.
Alfa also was required to divest itself of an undisclosed number of companies that were not part of its core business. By the end of 1988 it had sold most of its food, and all of its tourism, real estate
, and electric home-appliance holdings, retaining only two dozen subsidiaries. "There are no family members in important executive positions", Business Latin America wrote, "and this has contributed to a more professional and predictable management style."
The settlement of Alfa's debt left unresolved Hylsa's own debt, which in 1988 reached $1.2 billion to 68 lenders, including about $300 million in overdue interest. About 70 percent of the foreign lenders agreed to exchange about $639 million of the debt for about $385 million in debt owed by Mexico itself and about $69 million in cash. In addition, foreign lenders who were owed $273 million and Mexican banks holding about $301 million in Hylsa debt agreed to stretch out the loan repayments over 15 years and received 21 percent of Hylsa's common stock
. The agreements allowed Hylsa to spend as much as $165 million over the next five years in capital expenditures, thereby giving it the opportunity to continue trying to compete in a crowded industry.
Alfa celebrated the restructuring of its debts with an elaborate outdoor mass
on a Monterrey baseball field
in 1988, attended by 10,000 employees. The company recorded the most profitable year of its history in 1988. Operating income was a record $425 million and special gains related to the debt restructuring and the peso's stabilization against the dollar added $575 million more. Alfa did so well that the Garza Sada family was able to buy back much of the equity it had surrendered to its creditors.
and packaging subsidiary
Empaques de Carton Titan.
When Dionisio Garza Medina, a nephew of Bernardo Garza Sada, became chairman in 1994, he fired half of Alfa's middle managers and focused on restoring higher profitability
to the company's three main business sectors: steel, petrochemicals, and food. Hylsa (now Hylsamex) and Sigma Alimentos
, the food subsidiary, received their own separate stock listings to reduce their dependence on the parent company. "If you look at the profile of our strategy", Garza Medina told a Wall Street Journal reporter, "we are going from a commodity
company into more value-added products", with higher profit margins. He also said Alfa would enter retailing by opening 25 home-improvement stores over the next five years.
The collapse of the peso
in late 1994 took a heavy toll on Alfa, as on other Mexican enterprises. Net sales rose to 14.21 billion pesos ($4.06 billion), but the company lost 2.16 billion pesos ($617 million). In 1995 Alfa returned to profitability, with net income of 2.09 billion pesos ($307 million) on net sales of 21.52 billion pesos ($3.16 billion). This was followed in 1996 by net income of 3.06 billion pesos ($400 million) on net sales of 27.83 billion pesos ($3.64 billion). Alfa's total debt was 18.5 billion pesos ($2.7 billion). The net worth of Bernardo Garza Sada and his family was estimated at $1.5 billion in 1996.
, auto parts, and home appliance
industries. It held 48 percent of the cold-rolled sheet market, 44 percent of the small-diameter pipe
market, and 38 percent of the galvanized-sheet market in 1995. A new flat-steel minimill was opened that year.
Sigma Alimentos, S.A. de C.V. (formerly Salumni, S.A. de C.V.), which distributed Oscar Mayer and its own brand of packaged meat
and other food products, enjoyed 36 percent of domestic market share in processed meats in 1995. Its distribution network included 50 refrigerated warehouses and a fleet of more than 800 refrigerated vehicles, including 570 delivery trucks. A frozen food
plant and a cheese
manufacturing facility were under construction. Sigma was planning to make frozen Mexican food for both the domestic and U.S. markets. This subsidiary accounted for 12 percent of Alfa's revenues in 1996.
Alfa's subsidiary Alpek, S.A. de C.V. was engaged in the manufacture of petrochemicals and synthetic fibers for use primarily as raw materials in the textile
, food, beverage, packaging, construction
, and automotive industries. It was also engaged in the manufacture of raw materials used in the production of polyester fibers and polymer products and in the manufacture of specialty chemical products. Its own subsidiaries included Petrocel, S.A.; Nylon de Mexico, S.A. (60 percent); and Polioles, S.A. de C.V. (51 percent). Alpek was Alfa's biggest subsidiary, accounting for 44.5 percent of the parent company's revenues in 1996.
Versax, S.A. de C.V. was an Alfa subsidiary engaged in the production of aluminum cylinder
heads and in three other industries: carpets and rugs, mattresses, and building supplies. Another important subsidiary was Dinamica, S.A., which acted as the service group for the holding company
.
In 1996 Alfa formed a joint venture
with Valores Industriales, Bancomer (Mexico's second largest bank), and AT&T
to enter the Mexican long distance telephone market in competition against Teléfonos de Mexico. Alfa took a 26 percent interest in the company, Alestra, with Visa and Bancomer holding 25 percent and AT&T holding the remaining 49 percent. Alestra began long distance operations in Monterrey
and Querétaro
at the beginning of 1997 under the AT&T name. Alfa's stake was held through its subsidiary AlfaTelecom, S.A. de C.V.
In all, Alfa was operating ten petrochemical and synthetic fiber plants in 1995, seven steel plants and a service center, six refrigerated-food plants, two carpet and rug plants, two mattress plants, an aluminum cylinder-head plant, and two building supplies retail stores. It operated more than 70 distribution centers. Alfa was a party to 11 joint ventures with foreign companies.
Conglomerate (company)
A conglomerate is a combination of two or more corporations engaged in entirely different businesses that fall under one corporate structure , usually involving a parent company and several subsidiaries. Often, a conglomerate is a multi-industry company...
composed of four business groups: Alpek
Alpek
Alpek is a the largest petrochemical group in Mexico and one of the largest in Latin America. The company has 18 plants in 11 sites, in three countries. It is the world's fourth largest producer of PTA, and the second largest producer of PET in the Americas, where it also operates the largest EPS...
(petrochemicals), Nemak (aluminum components), Sigma Alimentos
Sigma Alimentos
Sigma Alimentos is a Mexico´s largest producer and distributor of refrigerated and frozen food.Sigma's main activities include the production, distribution and sale of processed meat, cheese, yogurt and prepared meals...
(foods) and Alestra (electronics and telecommunications).
ALFA is the world's leading manufacturer of high-tech aluminum engine heads and blocks through its subsidiary Nemak. It is one of the world's largest producers of PTA
PTA
-Organizations:* Andalusia Technology Park , a science park in Málaga, Spain* Parent-Teacher Association* Pakistan Telecommunication Authority* Passenger transport authority, a United Kingdom local government authority...
, a petrochemical product, and has an outstanding position in the market for other petrochemicals in Mexico. In addition, ALFA is the leader in the production of processed meats and cheese and one of the most important telecommunications service companies in Mexico.
ALFA shares are quoted on the Mexican Stock Exchange and Latibex, the Latin American market in the Madrid Stock Exchange.
Alfa Before 1980
The Monterrey Group empire derived from the founding in Monterrey of Cerveceria Cuauhtemoc, a breweryBrewery
A brewery is a dedicated building for the making of beer, though beer can be made at home, and has been for much of beer's history. A company which makes beer is called either a brewery or a brewing company....
, in 1890 by Isaac Garza Garza, his brother-in-law, Francisco Sada Muguerza, and two others. In 1936 the family holdings, already vast, were divided into two separate iindustrial
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
groups. One of these, Valores Industriales S.A. (Visa), established Hojalata y Laminas S.A. (Hylsa) to make steel sheet for the bottle cap
Bottle cap
Bottle caps are a type of closure used to seal the openings of bottles of many types. They can be small circular pieces of metal, usually steel, with plastic backings, and for plastic bottles a plastic cap is used instead. A bottle cap is typically colorfully decorated with the logo of the brand...
s of its beverages during World War II, when the United States cut steel
Steel
Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...
supplies to Mexico to meet its own needs. Hylsa became the largest privately run steel mill
Steel mill
A steel mill or steelworks is an industrial plant for the manufacture of steel.Steel is an alloy of iron and carbon. It is produced in a two-stage process. First, iron ore is reduced or smelted with coke and limestone in a blast furnace, producing molten iron which is either cast into pig iron or...
in Mexico, a fully integrated complex with activities ranging from mining and processing iron ore to finished products. In 1957 it patented HyL, a system of direct reduction known as fire sponging.
One of the two heads Eugenio Garza Sada
Eugenio Garza Sada
Eugenio Garza Sada was a Mexican businessman and philanthropist who founded the Monterrey Institute of Technology and Higher Education in 1943.-Early life:Garza Sada was born to Isaac Garza and Consuelo Sada...
,of the Monterrey Group, was murdered in 1973 in what was described as an abortive kidnapping
Kidnapping
In criminal law, kidnapping is the taking away or transportation of a person against that person's will, usually to hold the person in false imprisonment, a confinement without legal authority...
by left-wing terrorists, but before this happened, he and his brother Roberto Garza Sada divided the company into two parts. Bernardo Garza Sada
Bernardo Garza Sada
Bernardo Garza Sada was a Mexican businessman who founded the Grupo ALFA conglomerate in 1974. He also served as ALFA's former president...
, Roberto's son, became chairman of Grupo Industrial Alfa, S.A., which inherited Hylsa and many other industrial enterprises, including Empaques de Carton Titan, a packaging company founded in 1926; Nylon de Mexico (synthetic fibers), founded in 1952; and Polioles (chemicals), founded in 1962. "There is no falling out", one source explained to the New York Times. "But there was a real problem as to who would be next 'supreme,' so they juggled the shares within the family and divided the group."
Under Bernardo Garza Sada's leadership Alfa diversified from its base into petrochemicals, synthetic fibers, capital machinery, farm equipment
Farm equipment
Agricultural machinery is any kind of machinery used on a farm to help with farming. The best-known example of this kind is the tractor.-Soil cultivation:*Cultivator*Cultipacker*Chisel plow*Mulch tiller*Harrow**Spike harrow**Drag harrow...
, television set
Television set
A television set is a device that combines a tuner, display, and speakers for the purpose of viewing television. Television sets became a popular consumer product after the Second World War, using vacuum tubes and cathode ray tube displays...
s, and tourism
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
. It also took a quarter share in Grupo Televisa, which virtually monopolized Mexican television broadcasting. Its assets grew from $315 million to $1.5 billion between 1974 and 1978, its sales from $194 million to $836 million, and its income from $21 million to $83 million. In 1978 Alfa was the only Mexican company in the Fortune 500
Fortune 500
The Fortune 500 is an annual list compiled and published by Fortune magazine that ranks the top 500 U.S. closely held and public corporations as ranked by their gross revenue after adjustments made by Fortune to exclude the impact of excise taxes companies collect. The list includes publicly and...
list of the biggest companies outside the United States, except for state-owned Petroleos de Mexico (Pemex
Pemex
Petróleos Mexicanos or Pemex is a Mexican state-owned petroleum company. As of 2010, with a total asset worth of $415.75 billion, it is the second non-publicly listed largest company in the world by total market value, and Latin America's second largest enterprise by annual revenue as of 2009...
). Himself a graduate of the Massachusetts Institute of Technology
Massachusetts Institute of Technology
The Massachusetts Institute of Technology is a private research university located in Cambridge, Massachusetts. MIT has five schools and one college, containing a total of 32 academic departments, with a strong emphasis on scientific and technological education and research.Founded in 1861 in...
, Garza Sada staffed top management with graduates of MIT, Harvard, and the University of Pennsylvania
University of Pennsylvania
The University of Pennsylvania is a private, Ivy League university located in Philadelphia, Pennsylvania, United States. Penn is the fourth-oldest institution of higher education in the United States,Penn is the fourth-oldest using the founding dates claimed by each institution...
's Wharton School of Business. One observer said they "always picked the kid with the Harvard MBA over the guy who really knew the business. The Alfa man had to look good on paper."
Although Alfa formed joint ventures with Hercules and American Petrofina to produce polyester
Polyester
Polyester is a category of polymers which contain the ester functional group in their main chain. Although there are many polyesters, the term "polyester" as a specific material most commonly refers to polyethylene terephthalate...
, Du Pont to produce other synthetic fibers, Ford to turn out aluminum cylinder heads, and Hitachi to make electric motors, it insisted on control. "We manage these ventures, always", Garza Sada told Forbes in 1979. "We demand that!" Alfa received $2.4 billion in loans from more than 130 foreign creditors and was planning to invest $3.5 billion by the end of 1984, almost three-fifths of it in money to be borrowed, mostly from sources outside Mexico. It was not only the leading private firm in Mexico but in all of Latin America. By 1980 it had 157 subsidiaries in 39 branches of the economy.
In retrospect, following Alfa's near-bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
in 1982, Alfa's success bred arrogance. Many of the lower-management people had no practical experience, while the experienced upper management took charge of firms about which they knew very little. The company unwisely abandoned its prudent traditional policy of only integrating firms that had similar or complementary products. One observer said that Alfa "bought businesses like someone would buy candies for their children." A foreign bank representative recalled, "They were on the same kind of roll that the Mexican government was on then. Oil prices would know no limit. Grupo Alfa profits
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
would know no limit."
Restructuring in the 1980s
As an era of high prices for Mexico's oil exports suddenly came to an end, in late 1981 Alfa dropped its projection of earningsEarnings
Earnings are the net benefits of a Corporation's operation. Earnings is also the amount on which corporate tax is due. For an analysis of specific aspects of corporate operations several more specific terms are used as EBIT -- earnings before interest and taxes, EBITDA - earnings before...
for the year from $80 million to $2 million. By the end of the year it was predicting a $60 million loss and it finally reported an actual loss of $120 million. Before the year was out the government had extended Alfa an emergency aid package of 12 billion pesos ($480 million). In 1982 the Mexican economy
Economy
An economy consists of the economic system of a country or other area; the labor, capital and land resources; and the manufacturing, trade, distribution, and consumption of goods and services of that area...
hit the rocks. Largely because of the collapse of the peso and heavy interest obligations, Alfa lost $233 million and suspended principal as well as interest payments. In July 1982 it presented a restructuring plan that called for it to sell one-fourth of its assets over a five-year period. The corporate staff was slashed from 4,000 to 1,000, and later to 400. Manufacturing
Manufacturing
Manufacturing is the use of machines, tools and labor to produce goods for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale...
ventures in television sets, bicycles, and tractors were sold.
Eventually, in 1986, Alfa paid off about five dozen foreign banks in stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
. Under a complex arrangement, the creditor banks forgave $920 million in Alfa's debt
Debt
A debt is an obligation owed by one party to a second party, the creditor; usually this refers to assets granted by the creditor to the debtor, but the term can also be used metaphorically to cover moral obligations and other interactions not based on economic value.A debt is created when a...
in return for 45 percent of its stock. A 15-member board was named to govern the company, of which nine would be named jointly by the foreign banks and the Garza Sada family. A five-year voting trust for the stock was formed under which 16 percent of the Garza Sada family stock would be held with the 45 percent of the bank stock. The creditors also were paid $25 million by Alfa and $200 million in Mexican government debt.
Alfa also was required to divest itself of an undisclosed number of companies that were not part of its core business. By the end of 1988 it had sold most of its food, and all of its tourism, real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, and electric home-appliance holdings, retaining only two dozen subsidiaries. "There are no family members in important executive positions", Business Latin America wrote, "and this has contributed to a more professional and predictable management style."
The settlement of Alfa's debt left unresolved Hylsa's own debt, which in 1988 reached $1.2 billion to 68 lenders, including about $300 million in overdue interest. About 70 percent of the foreign lenders agreed to exchange about $639 million of the debt for about $385 million in debt owed by Mexico itself and about $69 million in cash. In addition, foreign lenders who were owed $273 million and Mexican banks holding about $301 million in Hylsa debt agreed to stretch out the loan repayments over 15 years and received 21 percent of Hylsa's common stock
Common stock
Common stock is a form of corporate equity ownership, a type of security. It is called "common" to distinguish it from preferred stock. In the event of bankruptcy, common stock investors receive their funds after preferred stock holders, bondholders, creditors, etc...
. The agreements allowed Hylsa to spend as much as $165 million over the next five years in capital expenditures, thereby giving it the opportunity to continue trying to compete in a crowded industry.
Alfa celebrated the restructuring of its debts with an elaborate outdoor mass
Mass
Mass can be defined as a quantitive measure of the resistance an object has to change in its velocity.In physics, mass commonly refers to any of the following three properties of matter, which have been shown experimentally to be equivalent:...
on a Monterrey baseball field
Baseball field
A baseball field, also called a ball field or a baseball diamond, is the field upon which the game of baseball is played. The terms "baseball field" and "ball field" are also often used as synonyms for ballpark.-Specifications:...
in 1988, attended by 10,000 employees. The company recorded the most profitable year of its history in 1988. Operating income was a record $425 million and special gains related to the debt restructuring and the peso's stabilization against the dollar added $575 million more. Alfa did so well that the Garza Sada family was able to buy back much of the equity it had surrendered to its creditors.
Alfa in the Early 1990s
The early 1990s were not as good a period for Alfa, as world demand for petrochemicals and steel slowed. In 1993 the company had revenues of 8.56 billion pesos ($2.5 billion), but operating income fell to 444 million pesos ($130 million). That year it sold its 51 percent stake in one of the Monterrey Group's oldest holdings, the paperPaper
Paper is a thin material mainly used for writing upon, printing upon, drawing or for packaging. It is produced by pressing together moist fibers, typically cellulose pulp derived from wood, rags or grasses, and drying them into flexible sheets....
and packaging subsidiary
Subsidiary
A subsidiary company, subsidiary, or daughter company is a company that is completely or partly owned and wholly controlled by another company that owns more than half of the subsidiary's stock. The subsidiary can be a company, corporation, or limited liability company. In some cases it is a...
Empaques de Carton Titan.
When Dionisio Garza Medina, a nephew of Bernardo Garza Sada, became chairman in 1994, he fired half of Alfa's middle managers and focused on restoring higher profitability
Profit (accounting)
In accounting, profit can be considered to be the difference between the purchase price and the costs of bringing to market whatever it is that is accounted as an enterprise in terms of the component costs of delivered goods and/or services and any operating or other expenses.-Definition:There are...
to the company's three main business sectors: steel, petrochemicals, and food. Hylsa (now Hylsamex) and Sigma Alimentos
Sigma Alimentos
Sigma Alimentos is a Mexico´s largest producer and distributor of refrigerated and frozen food.Sigma's main activities include the production, distribution and sale of processed meat, cheese, yogurt and prepared meals...
, the food subsidiary, received their own separate stock listings to reduce their dependence on the parent company. "If you look at the profile of our strategy", Garza Medina told a Wall Street Journal reporter, "we are going from a commodity
Commodity
In economics, a commodity is the generic term for any marketable item produced to satisfy wants or needs. Economic commodities comprise goods and services....
company into more value-added products", with higher profit margins. He also said Alfa would enter retailing by opening 25 home-improvement stores over the next five years.
The collapse of the peso
Peso
The word peso was the name of a coin that originated in Spain and became of immense importance internationally...
in late 1994 took a heavy toll on Alfa, as on other Mexican enterprises. Net sales rose to 14.21 billion pesos ($4.06 billion), but the company lost 2.16 billion pesos ($617 million). In 1995 Alfa returned to profitability, with net income of 2.09 billion pesos ($307 million) on net sales of 21.52 billion pesos ($3.16 billion). This was followed in 1996 by net income of 3.06 billion pesos ($400 million) on net sales of 27.83 billion pesos ($3.64 billion). Alfa's total debt was 18.5 billion pesos ($2.7 billion). The net worth of Bernardo Garza Sada and his family was estimated at $1.5 billion in 1996.
Alfa in 1996
Hylsamex's revenues accounted for nearly one-third of Alfa's in 1995 (and 35 percent in 1996), but its net income in 1995 was only 12 percent of the group's total. This company was involved in the entire steelmaking process from mining iron ore to manufacturing and distributing steel products. A low-cost steel producer that invested $982 million between 1990 and 1996 to modernize its facilities, it had the most diversified product line in Mexico's steel industry and was making products for use in the constructionConstruction
In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking...
, auto parts, and home appliance
Home appliance
Home appliances are electrical/mechanical machines which accomplish some household functions, such as cooking or cleaning. Home appliances can be classified into:*Major appliances, or White goods*Small appliances, or Brown goods...
industries. It held 48 percent of the cold-rolled sheet market, 44 percent of the small-diameter pipe
Pipe
Pipe may refer to:* Pipe , a hollow cylinder following certain dimension rules* Smoking pipe* Pipe or butt, a cask measurement* Pipe , a type of metal casting defect...
market, and 38 percent of the galvanized-sheet market in 1995. A new flat-steel minimill was opened that year.
Sigma Alimentos, S.A. de C.V. (formerly Salumni, S.A. de C.V.), which distributed Oscar Mayer and its own brand of packaged meat
Meat
Meat is animal flesh that is used as food. Most often, this means the skeletal muscle and associated fat and other tissues, but it may also describe other edible tissues such as organs and offal...
and other food products, enjoyed 36 percent of domestic market share in processed meats in 1995. Its distribution network included 50 refrigerated warehouses and a fleet of more than 800 refrigerated vehicles, including 570 delivery trucks. A frozen food
Frozen food
Freezing food preserves it from the time it is prepared to the time it is eaten. Since early times, farmers, fishermen, and trappers have preserved their game and produce in unheated buildings during the winter season. Freezing food slows down decomposition by turning water to ice, making it...
plant and a cheese
Cheese
Cheese is a generic term for a diverse group of milk-based food products. Cheese is produced throughout the world in wide-ranging flavors, textures, and forms....
manufacturing facility were under construction. Sigma was planning to make frozen Mexican food for both the domestic and U.S. markets. This subsidiary accounted for 12 percent of Alfa's revenues in 1996.
Alfa's subsidiary Alpek, S.A. de C.V. was engaged in the manufacture of petrochemicals and synthetic fibers for use primarily as raw materials in the textile
Textile
A textile or cloth is a flexible woven material consisting of a network of natural or artificial fibres often referred to as thread or yarn. Yarn is produced by spinning raw fibres of wool, flax, cotton, or other material to produce long strands...
, food, beverage, packaging, construction
Construction
In the fields of architecture and civil engineering, construction is a process that consists of the building or assembling of infrastructure. Far from being a single activity, large scale construction is a feat of human multitasking...
, and automotive industries. It was also engaged in the manufacture of raw materials used in the production of polyester fibers and polymer products and in the manufacture of specialty chemical products. Its own subsidiaries included Petrocel, S.A.; Nylon de Mexico, S.A. (60 percent); and Polioles, S.A. de C.V. (51 percent). Alpek was Alfa's biggest subsidiary, accounting for 44.5 percent of the parent company's revenues in 1996.
Versax, S.A. de C.V. was an Alfa subsidiary engaged in the production of aluminum cylinder
Cylinder (engine)
A cylinder is the central working part of a reciprocating engine or pump, the space in which a piston travels. Multiple cylinders are commonly arranged side by side in a bank, or engine block, which is typically cast from aluminum or cast iron before receiving precision machine work...
heads and in three other industries: carpets and rugs, mattresses, and building supplies. Another important subsidiary was Dinamica, S.A., which acted as the service group for the holding company
Holding company
A holding company is a company or firm that owns other companies' outstanding stock. It usually refers to a company which does not produce goods or services itself; rather, its purpose is to own shares of other companies. Holding companies allow the reduction of risk for the owners and can allow...
.
In 1996 Alfa formed a joint venture
Joint venture
A joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
with Valores Industriales, Bancomer (Mexico's second largest bank), and AT&T
AT&T
AT&T Inc. is an American multinational telecommunications corporation headquartered in Whitacre Tower, Dallas, Texas, United States. It is the largest provider of mobile telephony and fixed telephony in the United States, and is also a provider of broadband and subscription television services...
to enter the Mexican long distance telephone market in competition against Teléfonos de Mexico. Alfa took a 26 percent interest in the company, Alestra, with Visa and Bancomer holding 25 percent and AT&T holding the remaining 49 percent. Alestra began long distance operations in Monterrey
Monterrey
Monterrey , is the capital city of the northeastern state of Nuevo León in the country of Mexico. The city is anchor to the third-largest metropolitan area in Mexico and is ranked as the ninth-largest city in the nation. Monterrey serves as a commercial center in the north of the country and is the...
and Querétaro
Querétaro
Querétaro officially Estado Libre y Soberano de Querétaro de Arteaga is one of the 31 states which, with the Federal District, comprise the 32 Federal Entities of Mexico. It is divided into 18 municipalities and its capital city is Santiago de Querétaro....
at the beginning of 1997 under the AT&T name. Alfa's stake was held through its subsidiary AlfaTelecom, S.A. de C.V.
In all, Alfa was operating ten petrochemical and synthetic fiber plants in 1995, seven steel plants and a service center, six refrigerated-food plants, two carpet and rug plants, two mattress plants, an aluminum cylinder-head plant, and two building supplies retail stores. It operated more than 70 distribution centers. Alfa was a party to 11 joint ventures with foreign companies.