Empresas CMPC S.A.

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Empresas CMPC S.A.

Agustinas 1343
Santiago
Chile
Telephone: (56) (2) 441-2000
Fax: (56) (2) 671-1957
Web site: http://www.cmpc.cl

Public Company
Incorporated: 1920 as Compania Manufacturera de Papeles y Cartones S.A.
Employees: 8,573
Sales: CLP 1.08 trillion ($1.94 billion) (2004)
Stock Exchanges: Bolsa de Comercio de Santiago
Ticker Symbol: CMPC
NAIC: 111421 Nursery and Tree Production; 113110 Timber Tract Operations; 113310 Logging; 321113 Sawmills; 322110 Pulp Mills; 322121 Paper (Except Newsprint) Mills; 322122 Newsprint Mills; 322130 Paperboard Mills; 322211 Corrugated and Solid Fiber Box Manufacturing; 322212 Folding Paperboard Box Manufacturing

Empresas CMPC S.A. is one of the largest companies in Chile. Engaged in the manufacture, sale, and export of cellulose and a broad variety of paper products, it is second only to Empresa Copec S.A. (the nation's largest private enterprise) in the forest products field. CMPC also holds large forest tracts and plantations of fast-growing pine trees. It is the major holding of the Matte group, one of the wealthiest in Chile.

Chile's Paper Tiger: 1920–58

The son of a businessman, Luis Matte Larrain graduated from the University of Chile in 1915 with a degree in civil engineering. Visits to the Panama Canal and the United States gave him valuable contact with the industrial and entrepreneurial practices of North America. With a brother and three friends, he founded Luis Matte y Cia., which engaged in importing goods, principally fuels and lubricants.

But Matte had something more ambitious in mind—using Chile's bountiful forestry resources to manufacture paper products. Toward the end of 1918 he founded the Comunidad Fabrica de Carton Maipu. In 1920 he and Eduardo Morel Herrera merged this factory with that of German Ebbinghaus, who was operating the La Esperanza paper and cardboard factory in Puente Alto, a community on the outskirts of Santiago, to create Compania Manufacturera de Papeles y Cartones. The company had 44 shareholders and the capacity to produce 2,200 metric tons a year of paper and pasteboard. In 1924 it acquired its only meaningful rival, the Santa Victoria factory, also in Puente Alto.

Matte, who was general manager but only a minority stockholder, then presided over the construction of a cellulose (wood pulp) plant in Puente Alto and a hydroelectric power plant in Pirque. He acquired, in 1930, the San Miguel de Chillan hacienda and planted 10,000 hectares (almost 25,000 acres) with pine trees. Following a year of testing which Chilean wood might be most suitable, CMPC in 1931 purchased an industrial plant in Argentina capable of producing 9,000 kilos (about 20,000 pounds) a day of wood pulp. A new cellulose factory was constructed in 1932 to replace the original one. Shortly before Matte died in 1936, he acquired new machinery, expanded the hydroelectric plant, and began work on constructing a new wood-pulp plant to make paper for newspapers and magazines.

Following Luis Matte's death, leadership of the enterprise passed, in 1938, to Jorge Alessandri Rodriguez, an engineer who was brother-in-law of Arturo Matte, Luis's brother. He became general manager. Early in World War II, the German occupation of Norway put an end to CMPC's imports of Scandinavian wood pulp, which still accounted for half of its raw material. Cellulose from North America was more expensive. With an eye to increasing CMPC's cellulose supplies from its own resources, Alessandri, in 1940, purchased a tract of land near Concepcion that contained important reserves of radiata pine. In 1942 the company acquired a Valdivia-based paperboard company. At this point CMPC was supplying nearly all of Chile's demand for printing and packaging paper and, to a large extent, also the nation's supply of newsprint. In the 1950s CMPC built a pulp mill at Laja and a newsprint plant at Bio-Bio. This was one of the most significant industrial investments by Chilean capital without state support.

The son of a man who was twice president of Chile, Alessandri took time out to serve as Chile's secretary of the treasury (1947–50) and resigned as general manager in 1957 to pursue what proved to be a successful campaign for the presidency of Chile. On his election, the New York Times described Alessandri as having been "a brilliant mathematics student and professor. . . . He is identified with Chile's wealthy aristocracy and practices profit-sharing in his company." A bachelor, he was said to have almost no social life, usually dining with Arturo Matte and his wife (Alessandri's sister), who lived in the same apartment building. During his 20-year tenure as general manager, CMPC grew more than fourfold.

Further Expansion: 1958–95

On his election as president, Alessandri was succeeded as general manager of CMPC by Ernesto Ayala. The following year CMPC entered Argentina, Bolivia, Ecuador, Paraguay, Peru, and Uruguay for the first time by selling its newsprint in these countries. Later these nations also began accepting the firm's cellulose, although at first radiata-pine pulp was unheard of. In 1961, Eliodoro Matte Ossa, a grandnephew of the founder, became a CMPC director. A stockbroker who made his fortune on the Bolsa de Comercio de Santiago, Matte Ossa decided that the company's stock was undervalued and, through purchases, raised his share from 2 percent in 1965 to 26 percent in 1972.

By then the left-wing government of President Salvador Allende Gossens had assumed rule over Chile, following the 1970 presidential election, in which Allende narrowly defeated Alessandri, who had returned to CMPC after serving one term as president of the republic. The government already had controlling interests in the other two producers of newsprint and tried, but failed, to win control of CMPC (by far the largest) as well and thereby achieve a monopoly capable of shutting down the opposition press. The government was overthrown in 1973. Writing in Pulp & Paper the following year, Albert W. Wilson contended, "The strong paper industry labor unions are credited with being the decisive factor in Allende's downfall. To save CMPC from going the way of hundreds of other companies, its customers paid bills in advance. Suppliers eased and lengthened credit." Nevertheless, La Papelera, as CMPC was commonly called, lost $30 million in this period.

Matte Ossa bought more shares of CMPC between 1974 and 1978 but left the company in 1976, turning over his role as a director to his son Eliodoro Matte Larrain, who replaced Ayala as general manager in 1981 and executive vice-president in 1986. Alessandri remained president until 1986, when he died and was succeeded by Ayala, who kept the post until he resigned in 2002 at the age of 86. Arturo Mackenna Iniguez, who replaced Matte as general manager, still held this post in 2004. CMPC opened a factory in the 1970s producing molded pulp products for the export of eggs and fruits. In 1979 it transferred most of its forests and timber stands to a subsidiary, Forestal Mininco S.A. In 1982 it purchased full control of Laja Crown S.A., the joint venture it had shared with the U.S. paper company Crown Zellerbach Corp. since 1964. Also that year, the company introduced Austral notebooks, Babysan disposable diapers, and Suave hygienic paper.

In 1986 CMPC purchased 77 percent of debt-ridden Industrias Forestales S.A. (Inforsa) for CLP 6.56 billion ($33.6 million). The purchase included a corrugated-boxboard plant in Buin, a newsprint plant in Nacimiento, 75,000 hectares (185,000 acres) of tree plantations, a sawmill, and 50 percent of wood-pulp producer Papeles Sudamerica S.A. With this purchase CMPC raised its share of national newsprint production to at least 53 percent, wood pulp to 43 percent, corrugated boxboard to 85 percent, and forest plantations in Chile to 17 percent. A government commission, however, fearing a CMPC newsprint monopoly, forced the company to sell (for $123 million) its Bio-Bio mill. As of 1986 CMPC had 18 subsidiaries (including an insurance company fully acquired in 1988) and was involved in eight joint ventures.

CMPC entered Argentina in 1990 by purchasing, in partnership with Procter & Gamble Co., Quimica Estrella San Luis S.A., a manufacturer of sanitary napkins and paper diapers that was renamed Productos Descartables S.A. (Prodesa). By 1996 Prodesa was manufacturing more than half the disposable diapers and paper tissue in that country, and used it to introduce Pampers, Babysan, and Ladysan in Argentina. In 1992 CMPC formed a strategic alliance with Procter & Gamble to develop markets for the aforementioned products in Argentina, Bolivia, Paraguay, Peru, and Uruguay as well as Chile. In 1994 CMPC bought Fabi S.A., an Argentine manufacturer of cement sacks, and Industria Papelera Uruguaya S.A. (Ipusa), the paper-tissue leader in the Uruguayan market. In that year also CMPC established Productos Tissue S.A. for the manufacture, sale, and distribution of hygienic products such as napkins and disposable tissues in Chile. (A similar company had been established in Argentina in 1991.)

Key Dates:

1918:: The company that subsequently becomes Empresas CMPC is founded.
1942:: By this point CMPC is providing Chile with almost all of its printing and packaging paper.
1958:: CMPC's general manager, Jorge Alessandri, is elected president of Chile.
1971–73:: CMPC loses $30 million while fighting off control by Chile's socialist government.
1986:: CMPC expands greatly by purchasing debt-ridden Industrias Forestales S.A. (Inforsa).
1995:: Empresas CMPC is now Chile's second largest private company.
2003:: The company's holdings include 1.75 million acres of forests in Chile and Argentina.

New plantings, a higher level of technology, and optimal use of fertilization enabled the company's trees to mature faster, allowing them to be cut down in 18 rather than 23 years. Quality also improved, so that instead of being made into boxes for export to Japan as before, the wood was good enough to be sent to the United States. Reforestation included 20,000 hectares (nearly 50,000 acres) of eroded land in Coyhalque, planted with slower-growing ponderosa pine. In that year (1992) CMPC was the nation's third largest private company in sales and net worth. By 1995 it had reached second place. It was also the leading producer of paper tissues in South America and the sole forestry company making paper tissues in Chile and Argentina. La Papelera was one of the few Chilean enterprises to realize the dream of adding value to its prime materials. By this time the company held 500,000 hectares (nearly 1.25 acres) in Chile planted in radiata pine and eucalyptus, 142,000 hectares more than it held in 1990. It also held 250,000 hectares (nearly 625,000 acres) of pine and 52,000 hectares (128,000 acres) of eucalyptus in Argentina, where it owned Corepa, a wastepaper-collection operation.

Holding Company with Five Affiliates: 1996–2003

CMPC's revenue in 1996 came close to $1.2 billion. In that year the company had 22 affiliates and subsidiaries in Chile and was taking part in 12 joint ventures; it also had six affiliates and subsidiaries abroad. The Puente Alto and Talagante (constructed in 1994–95) plants in Chile were giving it 80 percent of the domestic tissue market. Talagante also was producing toilet paper, paper towels, and folded products such as paper handkerchiefs and napkins. CMPC was investing 70 percent of its profits in new businesses. Projects totaling $500 million were under way. In 1996–97 CMPC purchased La Papelera del Plata S.A. in Argentina for $50 million, raising its share of that tissue market to 40 to 50 percent. In Peru, CMPC was preparing to open paper-tissue and paper-bag plants.

In Chile, CMPC was investing, in 1996, in the modernization of the Laja and Nacimiento plants, and in the new Maule plant for the production of boxboard, or bristol board. With the object of constructing a plant for short-fiber bleached cellulose, the company initiated the planting of trees in the north of Chile and acquired 20,000 hectares (nearly 50,000 acres) of forest property in the provinces of Corrientes and Misiones. By this time the firm had made investments equivalent to $1.3 billion for new plantations and industrial plants over the last five years. On the other hand, CMPC was falling further behind Copec's Celulosa Arauco y Constitucion S.A., the rival cellulose-producing giant owned by the Angelini group, which outbid the Matte interests for Alto Parana S.A., the largest producer of cellulose in Argentina. But, unlike Copec, CMPC regarded wood pulp as only a means to an end. Curiously, the two groups, despite their rivalry, coexisted amicably, with the Matte group actually owning 10 percent of Copec and represented on its board by Bernardo Matte Larrain, Eliodoro's brother. The two companies also shared participation in an investment fund.

At this point CMPC (renamed Empresas CMPC in 1993) was a holding company with five affiliates. CMPC Forestal was responsible for raising the trees from hatchlings until harvesting and sale as doors and tables. CMPC Celulosa was responsible for producing cellulose in bundles for paper production and flat rolls for the manufacture of disposable diapers and sanitary napkins. This subsidiary also was responsible for Forestal e Industrial Santa Fe S.A., in which CMPC had taken a 20 percent share in 1995 and which was raised to 80 percent in 1997 (its properties including a eucalyptus pulp mill), and Celulosa del Pacifico S.A., a giant pulp mill in Mininco that it held as a joint venture with Simpson Paper Co. from 1989 to 1998, when it bought Simpson out. Simpson also sold its half-interest in a eucalyptus plantation to CMPC. The total cost of the buyout was $476 million.

A third affiliate was CMPC Productos de Papel, consisting of Envases Impresos S.A., a corrugated-boxboard factory; Grafex S.A., producing boxes (estuches ) and napkins, but sold the following year; Proyectos Australes S.A., a factory for notebooks, photocopy paper, and flexible packing containers; Propa S.A., a factory making industrial paper bags; Chilena de Moldeados S.A. (Chimolsa), a 40 percent-owned firm producing cardboard trays for the export of fruit; Fabi Argentina, making bags filled with cement; and Fabi Peru S.A. Proyectos Australes later changed its name to Forestal Bosques del Plata S.A. Chimolsa became fully owned by CMPC in 2003.

The major novelties in 1996 were CMPC Tissue and CMPC Papeles. The latter combined the newsprint plants, printing paper, and stationery, and the Maule plant for folding boxboard, in which the parent company was investing $200 million to make it the primary plant of its kind in Chile and to export its product for the production of packing containers. It opened in 1997. But without doubt CMPC Tissue was the major development of this period. In addition to the completion of the $60 million Talagante plant, 1995 saw as well the inauguration of an $80 million Protisa plant in Zarate, Argentina. The subsequent acquisition of Papelera del Plata at a cost of $50 million gave CMPC one of the most famous brands in Argentina and 55 percent of the Argentine market. CMPC Tissue also added Ipusa, in Uruguay, and entered Peru for napkins and hygienic paper. This affiliate also managed Prosan, CMPC's share of the joint venture with Procter & Gamble, turning out Pampers, Babysec disposable diapers, and Ladysoft sanitary pads in Argentina, Bolivia, Chile, Paraguay, and Uruguay until 1998, when CMPC sold its share to Procter & Gamble. CMPC Tissue was producing toilet paper, disposable tissues and diapers, napkins, paper towels, and sanitary napkins in Puente Alto, Talagante, and Zarate, Argentina, and was converting folding products at Naschel, Argentina.

As of 2003, CMPC Forestal (renamed Forestal Mininco S.A.) was administering 709,018 hectares (about 1.75 million acres) of forest. CMPC Celulosa was running the Pacifico, Santa Fe, and Laja mills, which turned out 1.14 million metric tons of wood pulp that year. Much of the timber came from third parties rather than the company's own holdings. CMPC Papeles was responsible for the Nacimiento newsprint plant, the Maule and Valdivia facilities turning out folding boxboard, and the Puente Alto factory producing corrugated container board. CMPC Productos de Papeles was producing boxes in Buin, Quilicara, and Til Til, multiwall sacks in Chillan, and molded trays in Puente Alto. As of 2004, CMPC's projects included a new corrugated board factory in Puente Alto and an expansion of the Pacifico plant to produce 475,000 metric tons of wood pulp per year. In that year the company earned an impressive CLP 219.22 billion ($393.25 million) profit on revenue of CLP 1.08 trillion ($1.94 billion).

Jorge Gabriel Larrain, brother-in-law of Elidorio and Bernardo, was in charge of Minera Valparaiso, the family group's 65 percent-owned major holding outside CMPC. The private port and electric generators used by this company also were being put to use by CMPC. The Matte group owned 55 percent of CMPC.