Votorantim Participaçoes S.A.

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Votorantim Participaçoes S.A.

255 Rue Amauri
Sao Paulo, Sao Paulo 01448-000
Brazil
Telephone: (55) (11) 3704-3300
Fax: (55) (11) 3167-1550
Web site: http://www.votorantim.com

Private Company
Incorporated: 1918 as S.A. Fábrica Votarantim
Employees: 4,500
Sales: BRL 18.4 billion ($6.28 billion) (2004 est.)
NAIC: 11310 Orange Groves; 113210 Forest Nurseries and Gathering of Forest Products; 221122 Electric Power Distribution; 311411 Frozen Fruit, Juice, and Vegetable Processing; 322110 Pulp Mills; 322121 Paper (Except Newsprint) Mills; 325181 Alkalies and Chlorine Manufacturing; 326112 Unsupported Plastics Packaging Film and Sheet Manufacturing; 327310 Cement Manufacturing; 327320 Ready-Mix Concrete Manufacturing; 331312 Primary Aluminum Production; 518210 Data Processing, Hosting, and Related Services; 522110 Commercial Banking; 523110 Investment Banking and Securities Dealing; 551112 Offices of Other Holding Companies

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

Creation and Growth of an Industrial Empire: 1918–73

Votorantim was founded by Antônio Pereira Ignácio, who was brought to Brazil in 1874 by his Portuguese parents. He started his career as the semiliterate proprietor of a small shoe shop but later became owner of a cottonseed-oil mill. By 1918 he was prosperous enough to buy at auction, with Nicolau Scarpa, a textile manufacturer that was in receivership because its owner, a bank, had failed. The mill, 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 already a substantial enterprise, with 1,300 looms and 25,000 spindles.

Perreira Ignácio gained a strong right arm in the person of José 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 Perreira Ignácio founded Santa Helena, a cement works, in 1936. The following year they established, with Brazilian and U.S. partners, Companhia Nitro Química Brasileira to manufacture "synthetic cotton" (rayon). De Moraes traveled to the United States and acquired machinery there for the factory, which opened in 1940. In 1938 Votorantim established Usina Siderúrgica Barra Mansa, a company manufacturing steel bars, and in 1941, Companhia Brasileira de Alumínio (CBA). Although Brazil has plentiful deposits of bauxite (aluminum ore), CBA was the first Brazilian-owned company to produce aluminum there, but construction did not begin until after World War II. Because the only other producer—the Brazilian subsidiary of Canada's Alcan Inc.—refused to provide the electrical power needed for the plant, Votorantim built its own hydroelectric facilities, enabling aluminum 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 integrated backwards, buying huge tracts of land containing the raw materials 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 boom-and-bust economic cycles. The group financed itself out of its profits, avoided entangling ties with government, and kept its companies largely independent of one another, with necessary coordination generally confined to a few family members at the top. Votorantim never lost money.

The Second Generation Rules: 1973–2001

Perreira Ignácio died in 1951 and was succeeded by de Moraes as president of the Votarantim group. Among the new businesses created during his presidency was Companhia Minera de Metais, a zinc producer, in 1967. But by the time of his death in 1973, de Moraes, a senator 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, who became superintendent. Both were alumni of the Colorado School of Mines and well-drilled in their father's work ethic. Antônio Ermírio, who Forbes placed on its 1987 list of the world's richest people, with a fortune estimated at $1.5 billion, was said by the magazine's Patrick Duggan to be the one who "called the shots." 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 without bodyguards and left instructions not to pay anything if he were taken captive.

At the time of the passing of the senior de Moraes, Votorantim consisted of 46 companies with 33,000 workers. In 1982 Votarantim was a group consisting of 92 companies in 17 states, with 60 factories, 54,500 employees, and combined annual revenue of 376.6 billion cruzeiros (about $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 percent of the refractory materials. Companhia Níquel Tocantina, founded in 1981—as the result of 20 years of planning—added nickel to its products. The group's textile goods were being sold by its 30-unit Casa Jaraguá chain. Sugar and alcohol were being produced in the state of Pernambuco. Nitro Química was turning out rayon, soda, chlorine, and phosphates. One company had been making transparent paper since 1948; another was producing cardboard cartons. About 70 percent of the group's energy consumption came from its own facilities. In 1981 the group established its own investment bank, Banco Votorantim. In 1985 Votorantim was the fourth-largest private (that is, nongovernment) enterprise in Brazil owned by Brazilians rather than foreigners. It was the largest industrial group and largest private-sector employer in Brazil.

The group's determination to control costs was illustrated by its headquarters in the former Hotel Esplanada in the center of Sao Paulo, where the senior de Moraes had married Perreira Ignácio's daughter. This vast and sumptuous hotel had been stripped of its furnishings 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 needed to return the old one. No one was given an exclusive personal secretary. 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 employees. The debt came to only 8 percent of its capital. Despite investment of more than $120 million in 1986, only one subsidiary loaned money from a bank. There were, however, changes in direction during this decade. Votorantim sold its sugarcane, alcohol, refractory-materials, textile, cellophane, and rayon holdings. It expanded its interests in the pulp and paper industry in 1988, when it purchased Celpav 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-largest pulp and paper producer and was renamed Votorantim Celulose e Papel S.A. (VCP) in 1995. The group entered the field of concentrated citrus-fruit juice by means of Citrovita Agro Industrial in 1989. This company claimed to own the world's largest orange grove, in which it planted 3.5 million trees.

In 1992 José Ermírio, Jr., announced that he, Antônio Ermírio, their younger brother, Ermírio Perreira de Moraes, and their brother-in-law, Clóvis Scripilliti, were resigning their positions. Although remaining on the group's board, they 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 hours each weekday at headquarters and spent weekends visiting Votorantim factories when not at the Portuguese community hospital in Sao Paulo, 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. Antonio Ermírio received control of the metallurgical and mineral enterprises; José Ermírio, the cement and pulp and paper ones; Ermírio Pereira, the chemical and citrus-juice ones; and Scripilliti, the businesses in north and northeastern Brazil.

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 executives who are not family members.

The rift between José Ermirio and Antônio Ermírio was underlined by the scandal that brought down the president of Brazil, 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 presi-dent's operatives to secure contracts or other favors. The exposure of these payoffs eventually forced Collor to resign his office at the end of 1992.

Only small stakes in Votorantim's cement and paper holdings were in public hands, but in 1997 the group, for the first time, solicited the world capital markets by selling $400-million worth of bonds. Votorantim entered a consortium that sought to acquire Companhia Vale do 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, an electricity-generating joint venture, and purchased controlling shares 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 fourth in pulp and paper production (although first in paper sales). It was also third in orange-juice production. With its partners Banco Bradesco S.A. and the construction firm Construçoes e Comércio Camargo Corrêa S.A., it was the nation's second-largest distributor of electricity. Votarantim's $3.6 billion in revenue came from: cement, 36 percent; metallurgy, 29 percent; pulp and paper, 21 percent; agroindustry and miscellaneous, 5 percent each; and chemicals, 4 percent. Despite its size, the group was much leaner in personnel than in the past; its 22,000 employees were only about a third of its labor force at the 1980s peak.

New Century, New Administration

A new company, Votorantim Venture Capital (VVC), was organized in 1999. The purpose was to form alliances with entrepreneurs and other groups and inject new technologies in traditional businesses with the aim of increasing their value. Another purpose was to create electronic portals for the group. Other areas of interest included biotechnology, bioinformation, biodiversity, and data-center and call-center services. Alellyx engaged in genetic research intended to raise the yield of the group's oranges, sugarcane, and eucalyptus trees. Scyla worked on developing information-technology services and software. OptiGlobe provided data-center services for Latin American businesses seeking to outsource their information-technology needs. Some $300 million was earmarked for VVC over five years, and a biotechnology cluster 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 third de Moraes generation, which was now reaching, or had already reached, middle age. José Ermírio, Jr., died in 2001, leaving Antônio Ermírio as the senior member of the older generation. A new model of governance for the group was announced that year, soon after Votorantim Participaçoes was founded as the group's operational holding company. Mindful of a study showing that family enterprises rarely lasted more than three generations—largely because of internal feuding—the 23 third-generation heirs announced that, while forming an eight-member executive council with the final authority over strategy and acquisitions, they would, over a five-year transitional period, yield day-to-day administration to executives who were not family members. Located in a Sao Paulo commercial building, the offices of Votorantim Participaçoes presented a marked contrast to the old headquarters with ample light filtered by venetian blinds through the large windows, blond-wood paneling, and glass dividers.

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 multinational companies. Later, an Alcan Inc. executive was hired to run Votarantim Mineraçao e Metalurgica (VMM), a division created in 1997. The chief executive of a large Brazilian mining company became head 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 expanding and operating successfully outside Brazil.

Despite its growing interest in new technology, the group's largest sector continued to be in a traditional business—cement. In 2002 Votorantim Cimentos Ltda. was a company consisting of several cement, mortar, and lime subsidiaries comprising 22 plants throughout Brazil, where 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 in that field. It began expanding outside Brazil in 2001, when it purchased Toronto-based St. Marys Cement Inc. for $680 million. St. Marys held a half-share of Florida's Suwannee American Cement and factories in the Great Lakes region of the United States, making it the world's eighth-largest cement company. In 2005 Votorantim Cimentos purchased more Great Lakes factories from the Mexican multinational giant 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 eucalyptus 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 paper 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 ranked second to Alcoa's Brazilian subsidiary. But, because 60 percent of its electricity came from the Votorantim group's own generating plants, its profit came to BRL 716 million ($244 million), almost twice as large as Alcoa's. CBA was the only enterprise in Votorantim's portfolio being administered personally by Antônio Ermírio 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 Votarantim Cimentos. Three years later, Votorantim as a whole was honored by Exame as the best enterprise of the last 30 years. Its consolidated 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 billion.) The consolidated net profit of 4.14 billion BRL ($1.66 billion) was 20 percent higher than in 2003. Among major private groups in 2003, Votorantim ranked tenth in sales, second in profits, and fourth in estimated net worth. It was still tenth in sales in 2004.

Vontarantim Participaçoes was the operational arm of Hejoassú, 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 entitled to appoint two members of the next generation to serve on the executive council of Votarantim Participaçoes. The presidency of the council was to rotate between the eight. Of the fourth generation of heirs, 60 or so in number, some 15 were undergoing apprenticeships presided over by Scripilitti, but with no guarantee that they would 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 Brasileira de Alumínio; Votorantim Agroindústria; Votarantim Celulose e Papel S.A.; Votorantim Cimentos Ltda.; Votorantim Energia Ltda.; Votarantim Filmes Flexiveis Ltda.; Votarantim International do Brasil Ltda.; Votorantim International Europe GMBH (Germany); Votorantim International Europe N.V. (Belgium); Votorantim International North America (United States); Votarantim Metals; Votorantim Novos Negócios; 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.; Companhia Energética de Minas Gerais; Klabin S.A.; Suzano Papel e Celulose.