Madeco S.A.

Ureta Cox 930
San Miguel, Santiago
Chile
Telephone: (56) (2) 520-1000
Fax: (56) (2) 520-1140
Web site: http://www.madeco.cl

Public Company
Incorporated: 1944 as Manufacturas de Cobre S.A.
Employees: 2,751
Sales: CLP 324.03 billion ($581.32 million) (2004)
Stock Exchanges: Bolsa de Comercio de Santiago New York
Ticker Symbols: MADECO; MAD
NAIC: 322996 Fabricated Pipe and Pipefitting Manufacturing; 326112 Unsupported Film and Sheet Manufacturing Plastics Packaging; 331316 Aluminum Extruded Product Manufacturing; 335929 Other Communication and Energy Wire Manufacturing

Madeco S.A. is a Chile-based manufacturer of finished and semifinished metal products made of copper, aluminum, and related alloys. Its principal products include wires and cables; tubes, sheets, coils, and bars; and aluminum profiles. The company also manufactures flexible packaging products. Its factories are mainly in Chile and Argentina, but are also in Brazil and Peru.

Industrial Conglomerate: 1944–86

Madeco is an acronym for Manufacturas de Cobre S.A., which was founded in 1944 by Sociedad Manufacturera de Metales S.A., a Chilean company whose principal shareholders were Americo and Aurelio Simonetti and Corporación de Fomento de la Producción (Corfo), a government-owned development corporation. The purpose was to convert the nation's bountiful copper deposits into copper- and copper-alloy products made within Chile itself. These products were wires and cables, pipes, bars, and sheets. By 1960 Madeco had become Chile's first significant manufacturer of finished and intermediate copper products.

It soon became clear, however, that aluminum was a formidable industrial rival of copper because of its lower price and lighter weight, although it was not a suitable substitute for copper in the manufacture of wires and cables. Madeco began, in 1954, producing aluminum sheets and foil, and also profiles for the construction of windows, doors, and curtain walls. Alusa S.A. was established in 1961 in conjunction with the Zecchetto family to manufacture flexible packaging for use in food, snacks, and cosmetic products. About the same time Madeco began making considerable investments in order to modernize its output of copper and aluminum tubes, pipes, sheets, and plates, and its aluminum foil. In 1966, with the collaboration of the Washington-based Export-Import Bank and capital and technical assistance from General Cable Corp. and the Italian firm CEAT, work began on a cable-producing plant located in Antofagasta. During this decade CEAT bought 30 percent of Madeco, with most, perhaps all, of the rest becoming the property of a group belonging to Andrónico Luksic Abaroa.

Madeco was nationalized under the aegis of Corfo in 1971, following the election of a Marxist-dominated socialist government the previous year. Two years after this government was overthrown by a military coup in 1973, the enterprise was returned to prior management. By 1980 Corfo's stake had been sold to CEAT and Forestal Quiñenco S.A., Luksic's holding company. Although private ownership had been restored, conditions remained difficult for management because the military's government program of economic liberalization exposed the company's products to strong foreign competition. The severe recession of the early 1980s placed Madeco, as well as many other Chilean companies, near bankruptcy. In 1983 Quiñenco purchased CEAT's Madeco stock, raising its stake in the company to about two-thirds of the shares.

Advances and Reversals: 1986–2003

By 1986 the Chilean economy, and Madeco, were doing better. The company's debt, $75 million in 1980, had been reduced to $5 million. The wire and cable business had a reliable client in Compañia de Telecomunicaciones de Chile, the national telephone company. The pickup in the country's economy meant more construction and, therefore, more sales of tubes, plates, and profiles. Madeco's aluminum foil and sheets were finding new markets in east Asia. The following years saw a flurry of activity. In 1987 Madeco established Colada Continua Chilena S.A. to ensure the opportune production and delivery of copper rod, its principal raw material. The following year Madeco acquired Armat S.A., a manufacturer of minted coins and coin blanks made of copper and copper-based alloys for central banks around the world. Cotelsa S.A. was created in 1989 to manufacture wooden packaging. In 1990 Electromecánica Industrial S.A. (Emisa) was established for the repair of electric motors and servicing of other electrical equipment, and Eléctricas de Quilmes S.A. (Indelqui), an Argentine producer of power-transmission and telecommunications cable, was purchased. Indelqui was also a pioneer in fiber optics. Madeco also acquired Indalum S.A., the other principal manufacturer of aluminum profiles in Chile and, in collaboration with Codelco, Chile's state-owned copper producer, established a copper-tube factory in Beijing.

The next year was also an active one for Madeco. The company founded Ingewall S.A., to design and install curtain walls and Madecotel S.A. to install telephone lines produced by Madeco. Two more companies, Madeco Solar S.A. and Alusa's subsidiary Embalajes S.A., were formed in 1992. The following year Madeco acquired Triple-C, a Peruvian cable producer, and went public, raising $83 million by selling 11 percent of its common stock on the Bolsa de Comercio de Santiago and the New York Stock Exchange. The company continued its expansion in Argentina by acquiring a power-cable plant in Llavallol and also expanded its flexible packaging business into Argentina by acquiring Aluflex S.A.

Madeco was now engaged in a major capital investment and restructuring program intended to allow the company to bring new plants on line. Some $60 million was earmarked for 1994 and 1995, with the bulk of the investment program to go to the construction and packaging segments, which were seen as providing the greatest potential for growth during the next four or five years. But in 1994 Madeco also acquired 60 percent of Decker S.A.I.C.A.F. e I., the largest Argentine manufacturer of copper pipes and also a producer of copper sheets and brass pipes and sheets. Decker was merged with Indelqui in 1998 under the name Decker-Indelqui S.A. Triple-C merged with another large Peruvian cable manufacturer, Indeco S.A., under the Indeco name in 1994. Madeco, in 1996, acquired a minority interest in two Peruvian flexible packaging firms.

Madeco's next big move came in 1997, when it acquired two-thirds of Ficap S.A., Brazil's second largest cable company, for $121 million. Madeco raised about $76 million from stock sales that year to help provide the necessary funds and purchased the rest of Ficap in 1998. The company established a joint venture called Ficap Optel Ltda. in 1999 with Corning Inc., which purchased 25 percent and raised its participation to 50 percent in 2001. Ficap Optel's role was to produce, sell, and distribute optical-fiber cables. As part of the joint venture arrangement, Ficap Optel changed its name to Optel S.A. and purchased Corning's cable-manufacturing operation in Buenos Aires, which was renamed Optel Argentina S.A., while the Brazilian operation became Optel Ltda.

The Argentine recession that began in 1998 and resulted in the government's default on its debts and the devaluation of the peso at the end of 2001 did considerable damage to Madeco. Decker-Indelqui, its producer of wires and cables and brass mills in Argentina, closed its four plants in 2002. Corning withdrew from the Optel joint ventures, describing them as effectively bankrupt. Parent Madeco was in trouble, too, having lost money since 1998. Its shares of stock fell 95 percent in value. These setbacks resulted in managerial changes and a financial restructuring. The company, in 2003, rescheduled about $120 million in bank debt, paying 40 percent up front and agreeing to pay the rest over seven years, with a three-year grace period. Quiñenco provided at least $50 million of the funds needed, and a stock sale in Santiago raised about $7 million more. Madeco completed its debt-restructuring process by collecting about $95 million through a stock offering.

Tiberio Dall'Olio, a former CEAT executive who had been general manager of Madeco between 1980 and 1986, was brought back in 2002 to direct the firm's operations again. He vowed to save money not by laying off personnel but by selling some units abroad and by renovating the company's technology, which he described to the Chilean business magazine Gestión as "a little stagnant." He went on to affirm a commitment to "an ambience much more sympathetic and collaborative, less bureaucratic, and more direct in its relations. For example, I always have my doors open to all." Dall'Olio said that he dismissed his subordinates at 6:30 p.m. and considered weekends as "sacred" family time. "The workday atmosphere and interpersonal relations are very important.… My people ought to know that I will defend my company as my own, because in a certain way they are my family also. Besides I have a social responsibility, because people ought to feel a certain stability in their work."

Interviewed for another Chilean business magazine, Capital, by Lorena Medel, Dall'Olio said that Madeco had been "a gold mine" in the 1980s but had then grown too much. "It's the same as when one eats too much," he maintained. "The body swells and then becomes ill without knowing why." The completion of the financial restructuring enabled him to draft a three-year investment plan that emphasized modernizing the cable plant in Rio de Janeiro, Madeco's largest facility. The plan also called for an increase in the export of tubes and plates to Europe, the United States, and East Asia.

Company Perspectives:

Madeco S.A. was incorporated as an open stock corporation in Chile in 1944 and has expanded over the years into Brazil, Peru and Argentina. Today, the Company is a leading Latin American manufacturer of finished and semi-finished non-ferrous products based on copper, aluminum, related alloys and optical fiber as well as a manufacturer of flexible packaging products for use in the mass consumer market for food, snacks and cosmetics products.

Ingewall was sold in 2002, but by late 2003 Madeco was able to reopen the Decker-Indelqui copper pipe manufacturing operation and the foundry. In 2004 Madeco earned its first profit—CLP 8.51 billion ($15.27 million)—since 1998, on revenues that increased by one-third to CLP 324.03 billion ($581.32 million). The turnaround was in large part due to improved sales from the wire and cable and brass mills divisions. Madeco's long-term debt was CLP 126.38 billion ($226.73 million) at the end of 2004. Its total debt was CLP 298.57 billion ($535.65 million).

Madeco in 2004

Madeco was, in 2004, divided into four areas. By far the largest, accounting for more than half of all revenue, was the wire and cable division. This unit was producing both standard and customized wire and cable products for the telecommunications, energy, mining, and construction sectors, and also for durable goods manufacturers. The seven factories of this division were located in Argentina, Brazil, Chile, and Peru, but the one in Llavallol, Argentina, was not operating, and the Optel ones were doing little other than selling the cables in stock.

Second largest was the brass mills division, producing copper pipes for the construction sector and semifinished materials made from copper, aluminum, and related alloys for use in the fabrication of electrical components, mechanical parts, and hardware fixtures. Production was at facilities in both Chile and Argentina, with export to 36 countries. The flexible packaging division was manufacturing and selling aluminum foil and plastic wrap in Santiago and San Luis, Argentina. This division included the minority interest in two Peruvian operations. The aluminum profiles division continued to hold first place in its field in Chile and was also the largest distributor in this field in Chile. Quiñenco owned 56 percent of Madeco. Guillermo Luksic Craig, a son of Andrónico Luksic, was chairman of the board.

Principal Subsidiaries

Aluflex (Argentina; 76%); Alusa S.A. (76%); Armat S.A.; Decker-Indelqui S.A. (Argentina); Ficap S.A. (Brazil); Indeco S.A. (Peru; 93%).

Principal Operating Units

Aluminum Profiles; Brass Mills; Flexible Packaging; Wire and Cable.

Principal Competitors

Cabos e Sistemas do Brasil S.A.; Cembrass S.A.; Cimet S.A.; Cobre Cerrillos S.A.; Elaboradora de Cobre Viña del Mar S.A.; Envases del Pacífico S.A.; Pajarbol S.A.; Pirelli Cables S.A.I.C.; Pirelli Energía, Cabos e Sistemas do Brasil S.A.; Themco-Conformadores de Metales S.A.

Key Dates:

1944:

Manufacturas de Cobre S.A. (Madeco) is founded.

1954:

Madeco begins making aluminum products as well as copper products.

1961:

The company enters the flexible packaging field.

1966:

Work begins on a cable-producing plant in Antofagasta.

1971–75:

Nationalized Madeco is being run by a government agency.

1983:

The Luksic group takes majority control of the company, which is near bankruptcy.

1993:

Madeco goes public, raising $83 million through sales of stock.

1997–98:

Madeco purchases Brazil's second largest cable manufacturer.

1999:

A joint venture with Corning Inc. is producing fiber-optic cable in Brazil and Argentina.

2003:

Continuing losses result in a restructuring of the company's debt.

2004:

Madeco earns its first profit since 1998.

Further Reading

"Corning Increases Ownership in Brazilian Optical Fiber Cable Manufacturer," Fiber Optics Business, May 31, 2001, p. 9.

"Laminando un marco para las exportaciones," Gestión, August 1986, pp. 26–29.

"Madeco," LatinFinance, November 1993, pp. 52+.

Medel, Lorena, "El gran desafío," Capital, March 28–April 10, 2003, pp. 58–61.

Millman, Joel, "Follow the Philosophy of the Ant," Forbes, October 12, 1992, pp. 132, 134.

"A Nadie le Gusta Estar Entre los Peores, Pero Estoy Optimista con el Futuro," Gestión, October 2003, pp. 11–12, 14–15.

—Robert Halasz