Votorantim ParticipaçOes S.A. Business Information, Profile, and History

History of Votorantim Participaçoes S.A.

Votorantim Participaçoes S.A. is the operational holding compa ny for the Votorantim group, the second-largest family-owned industri al group in Brazil, that of the de Moraes family. This group consists of holdings in cement, pulp and paper, metals, flexible film, chemic als, agribusiness, and energy, partly financed by the group's own ban k. It is highly integrated, supplying itself with many or most of the raw materials it needs to turn out products and the electricity need ed in its manufacturing processes. A few cement holdings are in North America. Votorantim also has subsidiaries in Belgium, Germany, and S ingapore.

Creation and Growth of an Industrial Empire: 1918-73

Votorantim was founded by Antônio Pereira Ignácio, who w as brought to Brazil in 1874 by his Portuguese parents. He started hi s career as the semiliterate proprietor of a small shoe shop but late r became owner of a cottonseed-oil mill. By 1918 he was prosperous en ough to buy at auction, with Nicolau Scarpa, a textile manufacturer t hat was in receivership because its owner, a bank, had failed. The mi ll, about 60 miles from Sao Paulo, was a few miles from Sorocaba, in the district of Votorantim, from which it got its name. It was alread y a substantial enterprise, with 1,300 looms and 25,000 spindles.

Perreira Ignácio gained a strong right arm in the person of Jo sé Ermírio de Moraes, who married his daughter in 1925. De Moraes, an engineering graduate of the Colorado School of Mines, had ambitious plans and based his operations in Sao Paulo in 1932. In order to exploit the rich lime deposits around Sorocaba, he and Perr eira Ignácio founded Santa Helena, a cement works, in 1936. Th e following year they established, with Brazilian and U.S. partners, Companhia Nitro Química Brasileira to manufacture "synthetic c otton" (rayon). De Moraes traveled to the United States and acquired machinery there for the factory, which opened in 1940. In 1938 Votora ntim established Usina Siderúrgica Barra Mansa, a company manu facturing steel bars, and in 1941, Companhia Brasileira de Alum&iacut e;nio (CBA). Although Brazil has plentiful deposits of bauxite (alumi num ore), CBA was the first Brazilian-owned company to produce alumin um there, but construction did not begin until after World War II. Be cause the only other producer--the Brazilian subsidiary of Canada's A lcan Inc.--refused to provide the electrical power needed for the pla nt, Votorantim built its own hydroelectric facilities, enabling alumi num production to begin in 1955.

As the Votorantim group--S.A. Indústrias Votorantim--expanded, it continued to concentrate on basic-process commodity products with common technology and a limited number of intermediate customers. It also organized vertically. Although the group never extended forward to the production and distribution of goods to the final user, it in tegrated backwards, buying huge tracts of land containing the raw mat erials it needed, such as bauxite and other ores, and generating its own electricity to avoid government-determined rates. Votarantim's so -called fortress mentality served it well during Brazil's frequent bo om-and-bust economic cycles. The group financed itself out of its pro fits, avoided entangling ties with government, and kept its companies largely independent of one another, with necessary coordination gene rally confined to a few family members at the top. Votorantim never l ost money.

The Second Generation Rules: 1973-2001

Perreira Ignácio died in 1951 and was succeeded by de Moraes a s president of the Votarantim group. Among the new businesses created during his presidency was Companhia Minera de Metais, a zinc produce r, in 1967. But by the time of his death in 1973, de Moraes, a senato r and ambassador, had for many years been dedicating his time almost exclusively to politics, leaving administration of the group chiefly to the eldest two of his three sons: José Ermírio, Jr., who succeeded him as president, and Antônio Ermírio, wh o became superintendent. Both were alumni of the Colorado School of M ines and well-drilled in their father's work ethic. Antônio Erm írio, who Forbes placed on its 1987 list of the world's richest people, with a fortune estimated at $1.5 billion, was sa id by the magazine's Patrick Duggan to be the one who "called the sho ts." He also found time to run (unsuccessfully) for state governor of Sáo Paulo and write books, plays, and newspaper columns. In a country plagued by kidnappings of the rich for ransom, he traveled w ithout bodyguards and left instructions not to pay anything if he wer e taken captive.

At the time of the passing of the senior de Moraes, Votorantim consis ted of 46 companies with 33,000 workers. In 1982 Votarantim was a gro up consisting of 92 companies in 17 states, with 60 factories, 54,500 employees, and combined annual revenue of 376.6 billion cruzeiros (a bout $1.88 billion). It was producing 35 percent of the cement in Brazil, 30 percent of the aluminum, 60 percent of the zinc, and 25 p ercent of the refractory materials. Companhia Níquel Tocantina , founded in 1981--as the result of 20 years of planning--added nicke l to its products. The group's textile goods were being sold by its 3 0-unit Casa Jaraguá chain. Sugar and alcohol were being produc ed in the state of Pernambuco. Nitro Química was turning out r ayon, soda, chlorine, and phosphates. One company had been making tra nsparent paper since 1948; another was producing cardboard cartons. A bout 70 percent of the group's energy consumption came from its own f acilities. In 1981 the group established its own investment bank, Ban co Votorantim. In 1985 Votorantim was the fourth-largest private (tha t is, nongovernment) enterprise in Brazil owned by Brazilians rather than foreigners. It was the largest industrial group and largest priv ate-sector employer in Brazil.

The group's determination to control costs was illustrated by its hea dquarters in the former Hotel Esplanada in the center of Sao Paulo, w here the senior de Moraes had married Perreira Ignácio's daugh ter. This vast and sumptuous hotel had been stripped of its furnishin gs and assumed the ambience of a hospital. José Ermírio , Jr.'s, bare-walled quarters were decorated only with plastic plants in a vase. Until recently employees who wanted a new pencil had need ed to return the old one. No one was given an exclusive personal secr etary. And even in the corridor of the president's office, the lights were turned off during the lunch hour.

The group's holdings, in 1987, consisted of almost 100 companies with combined net worth of nearly $2 billion and more than 60,000 emp loyees. The debt came to only 8 percent of its capital. Despite inves tment of more than $120 million in 1986, only one subsidiary loan ed money from a bank. There were, however, changes in direction durin g this decade. Votorantim sold its sugarcane, alcohol, refractory-mat erials, textile, cellophane, and rayon holdings. It expanded its inte rests in the pulp and paper industry in 1988, when it purchased Celpa v Celulose e Papel Ltda., a company based in the state of Sao Paulo. In 1992 the group acquired Industrias de Papel Simao S.A., the fifth- largest Brazilian company in its field, for $230 million. Celpav became a subsidiary of Papel Simao, which became Brazil's third-large st pulp and paper producer and was renamed Votorantim Celulose e Pape l S.A. (VCP) in 1995. The group entered the field of concentrated cit rus-fruit juice by means of Citrovita Agro Industrial in 1989. This c ompany claimed to own the world's largest orange grove, in which it p lanted 3.5 million trees.

In 1992 José Ermírio, Jr., announced that he, Ant&ocirc ;nio Ermírio, their younger brother, Ermírio Perreira d e Moraes, and their brother-in-law, Clóvis Scripilliti, were r esigning their positions. Although remaining on the group's board, th ey would turn over day-to-day operations to their 13 male heirs. But he ran into an insuperable obstacle in the form of the six-foot-three , 220-pound Antônio Ermírio, who worked more than 12 hou rs each weekday at headquarters and spent weekends visiting Votoranti m factories when not at the Portuguese community hospital in Sao Paul o, where he served as unpaid chairman. The 63-year-old expressed his desire to die working.

Since the matter could not be resolved, the group was parceled out. A ntonio Ermírio received control of the metallurgical and miner al enterprises; José Ermírio, the cement and pulp and p aper ones; Ermírio Pereira, the chemical and citrus-juice ones ; and Scripilliti, the businesses in north and northeastern Brazil.

The rift between José Ermirio and Antônio Ermírio was underlined by the scandal that brought down the president of Bra zil, Fernando Collor de Mello. Reportedly on José's orders and over Antônio's objections, Votorantim contributed $300,000 to a slush fund that enriched Collor and his associates. Many other large Brazilian business enterprises also paid the president's operat ives to secure contracts or other favors. The exposure of these payof fs eventually forced Collor to resign his office at the end of 1992.

Only small stakes in Votorantim's cement and paper holdings were in p ublic hands, but in 1997 the group, for the first time, solicited the world capital markets by selling $400-million worth of bonds. Vo torantim entered a consortium that sought to acquire Companhia Vale d o Rio Doce (CVRD), Brazil's largest mining company, but was outbid by the giant privatized steel manufacturer Companhia Siderúrgica Nacional (CSN). However, it formed with two partners, VBC Energia, a n electricity-generating joint venture, and purchased controlling sha res in two electricity distributors based in the industrialized south of Brazil.

As of 1999, Votarantim enterprises ranked first in nickel, zinc, and cement production in Brazil. The group was third in aluminum and four th in pulp and paper production (although first in paper sales). It w as also third in orange-juice production. With its partners Banco Bra desco S.A. and the construction firm Construçoes e Comé rcio Camargo Corrêa S.A., it was the nation's second-largest di stributor of electricity. Votarantim's $3.6 billion in revenue ca me from: cement, 36 percent; metallurgy, 29 percent; pulp and paper, 21 percent; agroindustry and miscellaneous, 5 percent each; and chemi cals, 4 percent. Despite its size, the group was much leaner in perso nnel than in the past; its 22,000 employees were only about a third o f its labor force at the 1980s peak.

New Century, New Administration

A new company, Votorantim Venture Capital (VVC), was organized in 199 9. The purpose was to form alliances with entrepreneurs and other gro ups and inject new technologies in traditional businesses with the ai m of increasing their value. Another purpose was to create electronic portals for the group. Other areas of interest included biotechnolog y, bioinformation, biodiversity, and data-center and call-center serv ices. Alellyx engaged in genetic research intended to raise the yield of the group's oranges, sugarcane, and eucalyptus trees. Scyla worke d on developing information-technology services and software. OptiGlo be provided data-center services for Latin American businesses seekin g to outsource their information-technology needs. Some $300 mill ion was earmarked for VVC over five years, and a biotechnology cluste r took shape in Techno Park, a high-technology center about 60 miles from Sao Paulo. Renamed Votorantim Novos Negócios (VNN), this enterprise consisted in 2004 of eight companies with BRL 400 million (about $137 million) in annual sales, but was not yet profitable.

VVC was the group's first initiative given over exclusively to the th ird de Moraes generation, which was now reaching, or had already reac hed, middle age. José Ermírio, Jr., died in 2001, leavi ng Antônio Ermírio as the senior member of the older gen eration. A new model of governance for the group was announced that y ear, soon after Votorantim Participaçoes was founded as the gr oup's operational holding company. Mindful of a study showing that fa mily enterprises rarely lasted more than three generations--largely b ecause of internal feuding--the 23 third-generation heirs announced t hat, while forming an eight-member executive council with the final a uthority over strategy and acquisitions, they would, over a five-year transitional period, yield day-to-day administration to executives w ho were not family members. Located in a Sao Paulo commercial buildin g, the offices of Votorantim Participaçoes presented a marked contrast to the old headquarters with ample light filtered by venetia n blinds through the large windows, blond-wood paneling, and glass di viders.

The process of turning over administration to outside executives was not yet complete in 2005. Even before 2000, Votorantim had in recent years recruited executives from outside, often from competing multina tional companies. Later, an Alcan Inc. executive was hired to run Vot arantim Mineraçao e Metalurgica (VMM), a division created in 1 997. The chief executive of a large Brazilian mining company became h ead of VCP, and a Citigroup Inc. banker was appointed chief financial officer of Votorantim Cimentos. However, analysts questioned whether there was enough managerial talent to meet the group's goal of expan ding and operating successfully outside Brazil.

Despite its growing interest in new technology, the group's largest s ector continued to be in a traditional business--cement. In 2002 Voto rantim Cimentos Ltda. was a company consisting of several cement, mor tar, and lime subsidiaries comprising 22 plants throughout Brazil, wh ere they held a combined 42 percent share of the Brazilian market. In that year the company also entered the ready-mix concrete market by purchasing Engemix, which gave it 20 percent of the domestic market i n that field. It began expanding outside Brazil in 2001, when it purc hased Toronto-based St. Marys Cement Inc. for $680 million. St. M arys held a half-share of Florida's Suwannee American Cement and fact ories in the Great Lakes region of the United States, making it the w orld's eighth-largest cement company. In 2005 Votorantim Cimentos pur chased more Great Lakes factories from the Mexican multinational gian t CEMEX S.A. de C.V. for $389 million, raising its share of the U .S. cement market to about 6 percent.

VCP had become a company with, in 2004, $1 billion in net sales, almost half from exports. It owned about 195,000 hectares (about 480, 000 acres) of land in the state of Sao Paulo, where fast-growing euca lyptus was planted in some 260 tracts. Production from two mills came to 1.4 million metric tons of wood pulp and 610,000 metric tons of p aper per year. In 2004 VCP and another large pulp and paper producer, Companhia Suzano Celulose e Papel, joined forces to jointly acquire Ripasa S.A. Celulose e Papel for $720 million. (VCP began selling shares in the United States in 2000.)

CBA had revenue of BRL 2.2 billion ($751 million) in 2004 and ran ked second to Alcoa's Brazilian subsidiary. But, because 60 percent o f its electricity came from the Votorantim group's own generating pla nts, its profit came to BRL 716 million ($244 million), almost tw ice as large as Alcoa's. CBA was the only enterprise in Votorantim's portfolio being administered personally by Antônio Ermír io de Moraes.

The Brazilian business magazine Exame had given CBA its award as best enterprise of the year in 1983. In 2000 the award went to Vot arantim Cimentos. Three years later, Votorantim as a whole was honore d by Exame as the best enterprise of the last 30 years. Its co nsolidated net sales of 18.4 billion BRL in 2004 ($6.28 billion) was 17 percent higher than in 2003, according to Financial Times Ltd. 's Business News America. (Exame gave a figure of $8.55 bi llion.) The consolidated net profit of 4.14 billion BRL ($1.66 bi llion) was 20 percent higher than in 2003. Among major private groups in 2003, Votorantim ranked tenth in sales, second in profits, and fo urth in estimated net worth. It was still tenth in sales in 2004.

Vontarantim Participaçoes was the operational arm of Hejoass&u acute;, the controlling de Moraes family holding company. As of 2000, the four children of the senior José Ermírio de Moraes held equal shares of this company. Each of the four branches was ent itled to appoint two members of the next generation to serve on the e xecutive council of Votarantim Participaçoes. The presidency o f the council was to rotate between the eight. Of the fourth generati on of heirs, 60 or so in number, some 15 were undergoing apprenticesh ips presided over by Scripilitti, but with no guarantee that they wou ld ever rise to an executive position in the group.

Principal Divisions: Votarantim Finance; Votarantim Industrial ; Votarantim New Business.

Principal Subsidiaries: Banco Votarantim S.A.; Companhia Brasi leira de Alumínio; Votorantim Agroindústria; Votarantim Celulose e Papel S.A.; Votorantim Cimentos Ltda.; Votorantim Energia Ltda.; Votarantim Filmes Flexiveis Ltda.; Votarantim International d o Brasil Ltda.; Votorantim International Europe GMBH (Germany); Votor antim International Europe N.V. (Belgium); Votorantim International N orth America (United States); Votarantim Metals; Votorantim Novos Neg ócios; Votorantim N.V. (Singapore); Votarantim Química.

Principal Competitors: Aracruz Celulose S.A.; Banco Bradesco S .A.; Banco Itaú S.A.; Brasken S.A.; Cimento Rio Branco S.A.; C ompanhia Energética de Minas Gerais; Klabin S.A.; Suzano Papel e Celulose.

Chronology

• Key Dates:
• 1918: Antônio Perreira Ignácio founds Votorantim by purchasing a textile firm of that name.
• 1936: Votarantim opens a cement plant.
• 1937: Votarantim establishes a chemical firm to specialize in rayon manufacture.
• 1941: Votarantim founds a company for the purpose of producing aluminum.
• 1973: The Votarantim industrial group consists of 46 companies with 33,000 workers.
• 1987: The group now includes almost 100 companies employing 60 ,000 people.
• 1992: Administration of the group's entities is divided among the four direct heirs.
• 2001: Day-to-day administration is to be turned over to execut ives who are not family members.