Odebrecht S.A.

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Odebrecht S.A.

Avenida Luiz Viana Filho 2841
Salvador, Bahia 41730-900
Brazil
Telephone: 55 (71) 2105-1111
Fax: 55 (71) 3230-0701
Web site: http://www.odebrecht.com.br

Public Company
Incorporated: 1944 as Construtora Norberto Odebrecht S.A.
Employees: 24,859
Sales: BRL 21.87 billion ($7.4 billion) (2004)
Stock Exchanges: Bolsa de Valores de São Paulo
Ticker Symbol: ODBE
NAIC: 213111 Drilling Oil and Gas Wells; 213112 Support Activities for Oil and Gas Field Exploration; 236210 Industrial Building Construction; 236220 Commercial and Institutional Building Construction; 237110 Water and Sewer Line and Related Structures Construction; 237120 Oil and Gas Pipeline and Related Structures Construction; 237310 Highway, Street, and Bridge Construction; 325110 Petrochemical Manufacturing; 541330 Engineering Services; 551112 Offices of Nonbank Holding Companies

Odebrecht S.A. is a holding company for Construtora Norberto Odebrecht S.A., the biggest engineering and contracting company in Latin America, and Braskem S.A., the largest petrochemicals producer in Latin America and one of Brazil's five largest private-sector manufacturing companies. The holding company fully controls the former and owns the majority interest in the latter. Odebrecht S.A. is publicly traded but closely held by the founding family and its present and former employees. It stresses reinvestment of profits for long-term results.

Norberto Odebrecht's Empire: 1944–91

Emil Odebrecht arrived in Brazil in 1856 as an immigrant from Germany. Trained as an engineer in Prussia, he was a surveyor and road builder in southern Brazil. Emílio Odebrecht, one of his grandchildren, was a pioneer in the use of reinforced concrete in Brazil. He moved to Recife in 1918 and in the 1920s became a home builder in northeastern Brazil, transferring his company's headquarters to Salvador in 1926. But the business ground to a halt during World War II, when materials imported from Europe became scarce.

Emilio's son Norberto became a construction contractor in 1944, starting without assets except his father's employees, with whom he made a partnership pact. The business, Construtora Norberto Odebrecht S.A., took off in the 1960s, when international loans were plowed into large government infrastructure projects. According to Joel Millman's 1993 article in Forbes, "The company excelled in Brazil's rough-and-tumble regional patronage game, making millions on local Bahia state contracts for roads, power plants and refineries." At the end of the decade it began to extend its reach to southern Brazil. In 1969 Odebrecht's revenues came to less than $100 million, but four years later it more than doubled this total with contracts such as the ones it secured to take part in the construction of Rio de Janeiro's international airport and Rio's state university campus.

By 1976 Odebrecht was seeking a role in the huge Itaipú project being built in a part of the country remote from Bahia: the world's largest hydroelectric dam, scheduled to span the Paraná River along the border between Brazil and Paraguay. Odebrecht bought its way into the consortium building this project by paying about $100 million for Companhia Brasileira de Projectos e Obras (CBPO), then among the biggest contractors in the state of São Paulo. According to Millman, CBPO's Itaipú contracts "made Odebrecht a national player overnight." Other important public works in which the company took part in this period included the Angra dos Reis nuclear plant, a bridge in Florianópolis, and a railroad in the Amazon. It also participated in the construction of subways in Brasilia and Recife.

By the end of the 1970s, however, Odebrecht had decided to diversify, foreseeing that an era of lucrative government contracts for big public-works projects was coming to an end because of budgetary problems. Odebrecht paid about $100 million to buy Técnica Nacional de Engenharia S.A. (Tenenge), a major São Paulo-based company engaged in the assembly of industrial plants. It entered a new field in 1979, when it joined the state petrochemical holding group Petroquisa in Companhia Petroquímica de Camaçari (CPC), a producer of polyvinyl chloride (PVC) in Odebrecht's Bahia. In the same year the company became a contractor for the government-owned oil company Petróleos Brasileiros S.A. (Petrobras), prospecting for offshore oil from platforms in the Atlantic. In collaboration with English investors, it also searched for gold and vanadium deposits. The holding company Odebrecht S.A. was established in 1981.

At the same time, Odebrecht started working outside Brazil, beginning in 1978 with the construction of a hydroelectric plant in Peru. It became a contractor in Angola—like Brazil, a former Portuguese colony—in 1984, when it built a hydroelectric power plant. Later projects in Angola included sanitation and water-treatment systems, petroleum extraction for shipment to Brazil, and opening a diamond mine. The company also drilled for oil off the coasts of Gabon and India, built irrigation dikes in Ecuador and Peru, power plants in Argentina, Mexico, and Paraguay, and pulp and paper plants in Chile. It entered Europe in 1988 by purchasing a Portuguese highway and railroad builder and secured North Sea oil-drilling contracts by acquiring a British firm, SLP Engineering Ltd., in 1991. Odebrecht entered the United States that year by winning a contract to extend Miami's elevated-transit system. By late 1993 the company was active in 18 countries, and in the following year Brazilian government contracts represented less than 28 percent of Odebrecht's revenues.

Odebrecht had become a giant, with annual revenue of $2.6 billion and 43,472 employees in 1990. Petrochemicals now accounted for 30 percent of its assets. Foreign projects brought in $400 million, equivalent to 22 percent of its operating revenues. The following year Norberto Odebrecht, now 70 years old, yielded the presidency of the holding company to his eldest son, Emílio, a workaholic known for putting in 15- and 16-hour days as president of the construction firm.

Construction and Petrochemicals: 1991–2001

Odebrecht became the largest private investor in the Brazilian petrochemical industry during the early 1990s. The group bought assets not only from state-owned Petroquisa but also from numerous private holding companies, investing $350 million. It achieved its first controlling interest in a petrochemicals firm in 1992, when it bought a majority stake in PPH Companhia Industrial de Polipropileno, a polypropylene producer, from Petroquisa and the holding group Petropar. Its minority direct and indirect holdings included a stake in Unipar - Uniao de Indústrias Petroquímicas, a holding group participating in 16 petrochemical downstream companies, and Poliolefinas S.A.

Fernando Collor de Mello, president of Brazil, resigned from office in 1992 after revelations of rampant government corruption in which major construction companies were said to have secured contracts by issuing bribes to politicians. A consulting firm founded by an aide to the president in order to collect money from construction companies accumulated about $55 million. Odebrecht, as the largest such company, emerged badly tainted from the scandal. This outcome was a humiliation for Norberto Odebrecht, who had burnished the family's image through the Emílio Odebrecht Foundation, an organization established in 1965 that built schools and hospitals and funded health and education programs. Described by Armin Schmid and Rob McManamy in Design-Build as "part guru, part philosopher, part prophet," he had written five books on what he called "entrepreneur technology," emphasizing the primacy of service to the client, decentralization of management, and motivation of employees through profit sharing and participation in decision making. He stepped down as chairman of the group in 1998 and was succeeded by Emílio.

The scandal gave new impetus to Odebrecht's desire to diversify its activities. In 1994 it purchased three German construction firms and moved Tenenge's headquarters to London. The Portuguese transport contractor, Bento Pedroso Construçoes S.A., won the right to construct and operate the Vasco da Gama bridge over the Tagus River, a contract valued at more than $1 billion. In 1994 foreign projects accounted for $811 million of Odebrecht's $2.18 billion in consolidated revenues.

Odebrecht Contractors of Florida Inc. earned more than $400 million in public-works contracts during the 1990s, including a prominent part in the expansion and remodeling of Miami's international airport. Its role in the state was enhanced by close ties to Church & Tower Inc., a Miami construction firm run by Cuban exile leader Jorge Mas Canosa and—political opponents charged—by a $75,000 contribution to a foundation established by Jeb Bush, a real estate developer who was elected governor of Florida in 1998. By 2002, it was participating in the construction of Miami's American Airlines Arena, the South Terminal of the city's airport, and the city's Performing Arts Center. Odebrecht had taken part in more than 40 U.S. projects, including bridges and highways in the Southeast and the Seven Oaks dam-construction project in California, earning revenues of about $1.2 billion. The U.S. Army Corps of Engineers voted Odebrecht as its company of the year in 1999 for its construction of the Seven Oaks earthfill dam.

Odebrecht S.A. tentatively entered a new field, wood-pulp production, in 1991, when it launched a project to plant fast-growing eucalyptus trees on a 400-square-mile tract in a coastal portion of the state of Bahia. This joint venture with a Swedish-Finnish company seemingly came to an end in 1999.

Company Perspectives:

The Vision 2010 of the Odebrecht Organization consists of:

To be one of the five major private-enterprise groups of the Southern Hemisphere, leader in the segments in which it takes part, with a relevant international role. To be chosen by Clients, in its entrepreneurial capacity, in its attraction of Talents and in its capacity to produce new Entrepreneurs. To possess a solid Capital structure and create Value. To transmit a distinctive Image to our performing units. To be a means of National Pride in Brazil.

In the petrochemical field, Odebrecht joined forces with Petroquímica da Bahia S.A., a member of the Mariani group, in 2001 to purchase the government-owned holding company Companhia Nordeste de Participaçoes (Conepar) for BRL 785 million ($320 million). They also, in the same year, acquired control of Petroquímica do Nordeste - Copene Ltda., Brazil's largest petroleum "cracker." The following year they merged several different companies into a new company, Braskem S.A., with majority control by Odebrecht and its head office located in the chemical division's old quarters in Camaçari, Bahia. Braskem immediately became Latin America's largest thermo-plastics producer and one of the five largest private-sector manufacturing companies. It integrated the production of feed-stocks such as ethylene, propylene, and chlorine with downstream petrochemicals. The raw materials manufactured by Braskem were used to make a number of important final products, including plastics and acrylics for auto panels; synthetic rubber for tires; artificial fibers for upholstery and carpeting; plastic packaging; plastics used to make toys, utensils, and other products; synthetic fibers for the clothing industry; chemical compounds for the pharmaceutical industry; resistant plastic compounds for heavy industry and machinery manufacture; and pipes, tubes, plastic products, and shapes used for finishing by the civil construction industry.

Entering a New Century

Emílio Odebrecht, serving as both president and chairman of Odebrecht S.A., came to feel that he had put the organization at risk by concentrating so much power in his hands and yielded the former position in 2001. The post was assumed by Pedro Novis, an Odebrecht executive who had been working for the company since 1968. Emílio's eldest son, 34-year-old Marcelo, was seen as the future trustee of the family's holdings. Emílio and his four siblings each held equal shares in the family holding company Kieppe Participaçoes, which ultimately controlled Odebrecht S.A., but none of the other four were active in the company.

Odebrecht Holdings had a participation in about 200 companies in 2003 and revenues of $6.1 billion in that year. "Each one of our businesses functions as a small enterprise, led by a kind of owner," Emílio Odebrecht told the Brazilian business magazine Exame in 2004. "Basically, we expect two things from such a leader: a return for the client and for the shareholder. He has to confront the challenges and find the solutions…. Cen tralized chiefs don't fit this model, since they retard the development of personnel and of the enterprise itself. Entrepreneurial leaders think long term. Today, for example, we are working on planning for the next 20 years. There are three generations of professionals involved in this … to guarantee the perpetuity of the business…. This process isn't an abdication. It is a planned delegation."

Principal Subsidiaries

Braskem S.A. (73%); Construtora Norberto Odebrecht S.A.

Principal Competitors

Companhia Petroquímica do Sul; Construçoes e Comércio Camargo Corrêa S.A.; Construtora Andrade Gutierrez S.A.; Construtora Queiroz Galvao S.A.; Petroquímica Triunfo S.A.; Petroquímica Uniao S.A.; Refineria Alberto Pasqualini - Refap S.A.

Key Dates:

1944:: Norberto Odebrecht founds the construction company that bears his name.
1969:: The company's annual revenues approach $100 million.
1976:: Purchase of a São Paulo firm makes Odebrecht a major public-works contractor.
1978:: The company begins work on public-works projects outside Brazil.
1979:: Odebrecht takes its first stake in the petrochemicals manufacturing industry.
1988:: The company enters Europe by purchasing a Portuguese rail and road builder.
1990:: Odebrecht has annual revenue of $2.6 billion and 43,472 employees.
1993:: Odebrecht is active in construction projects in 18 countries.
2002:: The company's chemical and petrochemical holdings are merged into Braskem S.A.; Odebrecht has taken part in more than 40 U.S. construction projects since 1991.