Obrascon Huarte Lain S.A.

C/Gobelas No. 35-37, El Plantio
Madrid
Spain
Telephone: +34 91 348 41 00
Fax: +34 91 348 44 63
Web site: http://www.ohl.es

Public Company
Incorporated: 1911 as Sociedad General de Obras y Construcciones Obrascón S.A.
Employees: 11,033
Sales: EUR 2.23 billion ($2.82 billion)(2004)
Stock Exchanges: Madrid
Ticker Symbol: OHL
NAIC: 236220 Commercial and Institutional Building Construction; 221320 Sewage Treatment Facilities; 236210 Industrial Building Construction; 237310 Highway, Street, and Bridge Construction

Obrascon Huarte Lain S.A. (The OHL Group) is one of Spain's largest and most diversified construction groups. The company's primary area of operations remains in the large-scale construction, public works and infrastructure sectors, including road building and highway management and maintenance, harbor and port construction and maintenance, and the like. Since the early 2000s, however, OHL has been investing heavily in its diversification effort, boosting its operations in waste management and water treatment, urban and infrastructure services, and "social" construction, primarily of hotels and other tourism-market related structures, as well as shopping centers and retirement homes. OHL has coupled its diversification effort with an a geographic expansion effort. Although the company has long participated in foreign construction projects—the group's first contract, in fact, was for the construction of a port in Portugal in 1912—the company has been stepping up its international operations into the mid-2000s. Latin America has been a primary focus of the group's efforts in this regard, especially in Brazil, Argentina, Chile and Mexico. The company also has operations in North Africa. The company has also targeted the Eastern European market, acquiring Czech Republic construction leader ZS Brno as the springboard for further expansion in the region. OHL itself is the result of the merger of three mid-sized Spanish construction groups, between Obrascon and Huarte in 1998, and with Lain in 2001. The company's revenues of EUR 2.23 billion (US$ 2.82 billion) in 2004 place it among the top five Spanish construction groups. OHL is listed on the Madrid Stock Exchange. Chairman of the board Juan-Miguel Villar Mir is also the group's major shareholder.

Iberian Infrastructure Specialist in the 1910s

Sociedad General de Obras y Construcciones Obrascón, S.A., was founded in Bilbao, Spain in 1911. Obrascon's original shareholders were the Banco de Bilbao and the Banco de Vizcaya, which had begun to take an interest in financing infrastructure projects in the Iberian peninsula, and elsewhere. The company first project came from Portugal, when Obrascon won the contract to build two docks in the port of Lisbon. The construction of seaport infrastructures became a company specialty over the following decades.

Obrascon also retained a strong international focus. By 1918, the company had completed its first projects in North Africa. And in the years following World War II, Obrascon entered the American markets, and especially the Latin American region. The company's international expansion also encouraged the group to expand its focus, and in the 1960s Obrascon developed into a general construction group, with an emphasis on large-scale public works and infrastructure projects.

The company meanwhile had changed owners. In 1953, the Banco de Bilbao acquired full control of the company, a holding it maintained until 1973. Obrascon's ownership was then transferred to Altos Hornos de Vizcaya. But the company's growth effort quickly ran out of steam. By the mid-1980s, the company had begun to struggle amid falling profits. By 1987, Obrascon's losses had topped one billion pesetas—compared to the group's total capitalization value of just 900,000 pesetas.

Obrascon was rescued that year by Juan-Miguel Villar Mir. Born in Madrid in 1931, Villar Mir had started his career as a civil servant in the late 1950s, rising to a number of high-level administrative positions in the 1960s. Villar Mir left the government to enter the private sector at the end of the decade, in order to take over a failing company. The rescue of failed companies became something of a specialty for Villar Mir.

Villar Mir briefly returned to politics after the death of Franco—Villar Mir's political career included a stint as Spanish vice-president between 1975 and 1976. Disagreement with the new Spanish government led Villar Mir to abandon politics for the private sectors. Villar Mir at first invest in real estate, until he spotted a new opportunity with the collapse of Obrascon.

Paying a symbolic price of just one peseta, Villar Mir took over Obrascon and set it on a new course. Among other features of the new Obrascon strategy was a commitment to strong profit margins. As such, Obrascon began to shed its low-profit operations. Instead, the company focused its efforts on its building its infrastructure business. Into the 1990s, the company adopted a conservative approach to growth, based on its insistence on maintaining strong profit margins for its operations. By 1991, the company was strong enough financially to be listed on the Madrid Stock Exchange. The company then made an attempt to enter a number of other, related high-margin areas, such as building its own real estate portfolio. In 1991, the company joined with the United Kingdom's Northumbrian Water to develop a water distribution business for the Spanish market. Into the mid-1990s, the company remained a medium-sized business, posting annual revenues of the equivalent of just EUR 135 million.

Consolidating to Survive in the 1990s

Spain's entry into the European Union and the requirements of the Maastricht Treaty introduced a new era in the Spanish construction sector. Among other requirements, the Spanish government was required to reduce its level of public works spending significantly. As a result, the Spanish government inaugurated a new policy of transferring an increasing number of public works and infrastructure projects to the private sector. This decision, while opening the market for new projects to a variety of players, including banks and larger corporations, as well the construction groups themselves, nevertheless presented a significant hurdle to potential players. Companies were now expected to finance the construction of new projects from their own treasuries. At the same time, regional governments, which took over the awarding of civil contracts, began demanding that potential candidates establish a permanent presence in the region.

The new industry situation meant that companies hoping to establish themselves as a major players in the national construction market had no choice but to expand. Not only were companies required to expand geographically, in order to provide national coverage, they were also forced to build up the scale of their operations in order to develop the financing necessary to compete for and carry out new projects. The consolidation of the Spanish construction sector began in earnest in the mid-1990s. By the end of the decade, the sector, which previously counted nearly 30 larger groups, had been reduced to just 11 major players.

Obrascon emerged as one of the leaders of the consolidation effort. Abandoning its commitment to the high-margin, short-term profit-driven strategy that had enabled the group to rebound into the 1990s, the company launched a series of acquisitions, starting with the purchase of Elsan in 1996. That business posted revenues roughly equivalent to Obrascon's, although at lower profit levels. The addition of Elsan, however, added its specialty in asphalt-based construction, including roads, airports, parking lots and the like. Elsan also brought its subsidiary, Fernandez Constructor, which offered its specialty in bridge and special structures.

After spending some ESP 1.5 billion acquiring Elsan, the company closed out 1996 with the ESP 1 billion purchase of SATO. That company specialized in ports and other maritime and coastal civil works projects. Also that year, Obrascon announced its intention to sell off its real estate division and to exit the water distribution market. Instead, the company turned to the waste treatment sector, more closely related to its construction operations, acquiring 60 percent of Cida Hidroquimica. Also in 1996, Obrascon acquired a 40 percent stake in Ondagua, a company specialized in urban services infrastructure and water treatment. The company bought full control of Ondagua in 1998.

International Player in the 2000s

Villar Mir, who had in the meantime had orchestrated the rescue of a number of the failing companies, brought that specialty to Obrascon's benefit in 1997, acquiring, at first on a personal basis, a major stake in struggling construction rival Huarte. Established in 1927 by two Pamplona based families, Huarte had grown into one of the Spanish construction sectors major players. Into the mid-1990s, however, Huarte stumbled, and by 1995 the company had been forced to seek bankruptcy protection. The following year, Huarte and Obrascon began developing a working relationship, leading to Villar Mir's acquisition of a major stake in Huarte. As part of that purchase, Huarte's capitalization was reduced to zero, absorbing the group's debts.

The merger between Obrascon and the larger Huarte was carried out in 1998. The move reduced Villar Mir's stake in the newly renamed Obrascon Huarte to below 50 percent. Yet the company now emerged as one of the top ten Spanish construction groups. Obrascon also continued to build out its regional coverage, acquiring Malvar in 1999, and adding that group's focus on the Galicia region.

Company Perspectives:

The ultimate mission of the OHL Group is to create value in conditions of economic, social and environmental sustainability, catering to the specific interests of its clients, of the human team comprising the Group, of the investors and of all of the individuals and entities having a stake in the proper functioning of the company.

Obrascon continued to seek scale amid the general Spanish consolidation effort. The company found the next piece in its puzzle in 1999, when it agreed to merge with rival group Construcciones Lain, in a deal worth some $900 million. Lain had been founded in 1963 as the Spanish arm of British construction group John Laing Construction. Laing exited Spain in 1988, selling the Spanish subsidiary to a management buyout, which renamed the company as Construcciones Lain, then took it public in 1991. Lain too had launched an effort to acquire scale in the mid-1990s, buying up railway construction specialist Guinovart in 1995, the moving into the Basque region with the purchase of Sobrino in 1996. In 1998, Lain merged with Pacsa, a diversified group engaged in general construction, road building and renovation.

The merged Obrascon Huarte Lain (OHL) became Spain's fifth-largest construction group. OHL also established a clear strategy to become a diversified construction group for the new century, and especially targeting high-margin, high-growth areas such as urban services, and "social" construction—including hotel and tourism infrastructure projects, as well as shopping centers and retirement facilities and the like.

As it turned toward the new century, OHL also adopted a renewed strategy of international growth. As part of this effort, the company especially targeted the Latin American and North African markets. OHL at first focused on building up its road-building and toll road management and maintenance business, acquiring Chile's Infrasestructura 2000 from Endesa Chile, and its operations of the highway between Santiago and San Antonio, and the construction of the highway linking Santiago-Colina and Los Andes. The company also bought majority control of the AEC consortium building the Ezeiza-Canuelas freeway. In that year, also, the company briefly entered talks to acquire troubled Mexican construction group Tribasa. Those talks fell through, however.

By 2001, OHL had also begun to roll out an ambitious diversification strategy, announcing that it had developed plans for some US $1 billion in investments in Mexico alone for that year. The company also acquired parking lots operations in Santiago, and in 2002, the company also announced its intention to expand its presence in that sector.

OHL took a break from its South American expansion in 2003 to turn its sights on the promising Eastern European market. As a first step toward a proposed regional expansion effort, the company acquired a 61.1 percent stake in ZPSV Uhersky Ostroh, which owned ZS Brno, one of the leading construction groups in the Czech Republic.

In 2004, OHL stepped up its fast-developing hotel construction operations, announcing a new US$ 1 billion investment program to build up to four luxury hotels. That effort came as part of a strategic alliance with Fairmont Hotels & Resorts, and the Rosewood and Starwood hotel groups. Among the alliance's project was the construction of a two May Koba-branded hotels along the Mayan Riviera.

By 2005, OHL's Latin American operations included three highways, for a total of 909 kilometers, in Brazil as well. In that year, the company announced its plans to list its Brazilian subsidiary on the Sao Paulo exchange, as part of an effort to boost its operations in that country. OHL had successfully transformed itself from a mid-sized company in the Spanish market to a fast-growing, diversified player on the international construction market.

Principal Subsidiaries

Ambient Serviços Ambientais De Riberao Preto S.A. (Ambient); Autopista Del Sol S.A.; Autopista De Los Libertadores S.A.; Autopista Los Andes S.A. (Chile); Autopista Eje Aeropuerto CESA; Autopista Ezeiza Cañuelas S.A. (Aecsa) (Argentina); Autovias S.A (Brazil); Avalora, Tecnologías De La Información S.A.; Centrovias Sistemas Rodoviarios S.A. (Brazil); Concesionaria Mexiquense SA de CV (Mexico); Construcciones Adolfo Sobrino S.A.; Construcciones Enrique de Luis S.A. (Celsa); Desalant. S.A. (Chile); Desalinizadora Arica Ltda. (Desalari) (Chile); Electrificaciones Y Montajes Guinovart S.A.; Elsan-Pacsa S.A.; Ingenieria De Los Recursos Naturales S.A. (Irena); Inima Servicios Europeos De Medio Ambiente S.A.; Inima Usa Corporation; Jose Malvar Construcciones S.A.; Morkaitz S.A.; Muelles Y Espacios Portuarios S.A.; Ohl Central Europe, A.S. (Czech Republic); Ohl Concesiones, S.L.; Pabellon Cuauhtemoc SA de CV (Mexico); S.A. Trabajos Y Obras; Terminales Marítimas Del Sureste S.A.; Žsbrno, A.S. (Czech Republic); Žspv Uherský Ostroh A.S. (Czech Republic).

Principal Competitors

ENCOL S.A.; Roggio E Hijos Benito S.A.; Fomento de Construcciones y Contratas S.A.; Construtora Lider Ltda.; CMB S.A.; El Corte Ingles S.A.; ACS Actividades de Construccion y Servicios S.A.; Sacyr Vallehermoso S.A; Acciona S.A.; Sociedad General de Aguas de Barcelona S.A.; Abengoa S.A.;

Key Dates:

1911:

Sociedad General de Obras y Construcciones Obrascón S.A in Bilbao, Spain.

1912:

First contract to build two ports in Lisbon, Portugal.

1918:

First North African construction projects.

1960s:

Transitions from ports specialist to general construction.

1987:

Juan Miguel Villar Mir acquires Obrascon for one peseta.

1991:

Obrascon listed on Madrid stock exchange.

1996:

Launches drive to build scale and acquires Elsan, a road building specialist.

1998:

Merger with Huarte, founded in 1927.

1999:

Merger with Construcciones Lain, founded in 1963.

2003:

Acquires controlling stake in ZS Brno, a leading construction group in Czech Republic, as part of effort to expand into Eastern European market.

2005:

Announces plans to list Brazilian subsidiary on Sao Paulo stock exchange.

Further Reading

Becker, Robert, "Spanish OHL to Build Hotels in Mayan Riviera," El Economista, February 9, 2004.

Davis, Paul, "OHL May Sell Off Water Environ Subsidiary," Business News Americas, July 1, 2003.

Johnstone, Chris, "Spain's Obrascon Huarte Lain Buys Majority Stake in Brno Building Group," Prague Business Journal, April 21, 2003.

"Juan Miguel Villar Mir: Visión para hacer fácil lo difícil," El Mundo, October 3, 1999.

"OHL Invests US$1.0 billion in Tourism Sector," Internet Securities, February 7, 2004.

"OHL Looks to Raise US$222mn in IPO-Brazil," America's Intelligence Wire, June 29, 2005.

"Spain's OHL Talks Up Mexico Plans," Internet Securities, November 26, 2001.

"Spain's OHL to Control ZS Brno Through Purchase of ZPSV Group," Europe Intelligence Wire, April 14, 2003.

Tizón, Alvaro, "El Empresario que surgió de la crisis," El Mundo, February 7, 1999.