Billionaire’s Bids Target Cracks in Colombia Business Clan
(Bloomberg) -- It controls Colombia’s largest bank, food manufacturer, and cement maker. It operates airports, insurers and hamburger chains. And its companies make up half of the stock index.
The Medellin-based Grupo Empresarial Antioqueno, or GEA, has grown into Colombia’s biggest and most-influential business association over the past four decades. It has done so, in part, by using a cross-ownership system that has made it impervious to outsiders who would seek to take control.
Now, that same structure is threatening to become its undoing.
Jaime Gilinski, a banking billionaire who has managed to keep a low profile in the country despite being one its richest citizens, has found a crack in the GEA’s corporate armor: Offering a hefty premium, he’s seeking to buy a majority interest in one company that would give him control of large stakes in the others due to the cross-holding structure. It would set the stage for him to make a push to own the GEA’s three largest members.
“This is by far the biggest threat the GEA has faced,” said Javier Mejia, an economist at Stanford University who has studied the organization. “It’s the first time anyone has gone after big pieces of the group in an open way. The companies were not expecting this.”
The first part of Gilinski’s strategy is to persuade a majority of investors in foodmaker Grupo Nutresa SA to accept his $2.2 billion, or $7.71 per share, bid by the Jan. 12 deadline. If Gilinski is successful, he’ll also win control of the 13% stake Nutresa owns in financial conglomerate Grupo de Inversiones Suramericana SA, and the 9.5% it owns in Grupo Argos SA, which runs cement, energy, airport and infastructure businesses.
The second step in his strategy cleared a major hurdle Dec. 14 when his bid to buy as much as 31.68% of Sura for $1.2 billion received approval from Colombia’s financial regulator. The offer runs between Dec. 24 and Jan. 11, according to details published in Thursday’s edition of El Tiempo newspaper. Gilinski and his son, Gabriel, haven’t ruled out making a third offer, for Argos, to take control of all three companies, according to a person with direct knowledge of the strategy.
Sura and Argos have said they won’t sell their stakes in Nutresa to Gilinski.
Gilinski’s offers have sparked a backlash in Medellin where residents -- many of them shareholders or employees of the companies -- are highly protective of the homegrown firms. Friends share WhatsApp messages that extol the virtues of keeping the companies locally owned. An editorial in Medellin-based newspaper El Colombiano warned that it could mean the beginning of the end of a business model “that has been the backbone of progress in this region.”
The GEA was formed in the late 1970s by families who wanted to protect their businesses from outsiders, specifically people who weren’t from Medellin. At the time, the threat came from other Colombian companies that were flush with cash and on a buying spree. So a dozen leaders from Antioquia, the mountainous department of which Medellin is the capital, joined forces to defend “industrial patrimony.”
Out of that alliance they began buying large stakes in each others’ companies, similar to the Keiretsu structure employed by Japanese conglomerates. In the 1980s and 1990s, at the height of the Medellin drug cartel’s power, the group’s cross-ownership helped form a protective armor that shielded its companies from narco money.
The early iterations of the GEA was dominated by just a few families, but in the decades since that ownership has spread out to thousands of descendants who no longer share the same priorities as the founders.
“It’s atomized. There’s not a handful of figures or families anymore,” Mejia said. “You can trace some of it back to the founders, but now there are hundreds of branches of those families. It’s very broad and horizontal.”
That dispersal in ownership is one reason why Gilinski’s bid has a much better chance of succeeding than it would have just a few years ago.
Another factor is the companies’ poor performance. In the five years before the takeover bids, common shares of two of the three pillars of the GEA -- Argos and Sura -- fell more than 30% in local currency terms, and valuation metrics for all three were well below global peers. Since the offer for Nutresa was announced Nov. 10, the shares have rallied.
A third component supporting Gilinski’s bid is that he has a banking charter. Because Argos and Nutresa hold stakes exceeding 10% in Sura, which is a financial institution, any potential buyer of any of the companies would need approval from banking regulators. In Gilinski’s case, he doesn’t need it because of his ownership of Banco GNB Sudameris SA, the country’s 7th-largest bank.
Gilinski, a 64-year-old third-generation Colombian descended from a Lithuanian family of entrepreneurs, is betting that the premiums he’s offering -- 38% for Nutresa and 27% for Sura -- will be enough to persuade investors and pension fund managers to sell. To finance the transactions, he’s teaming with the royal family of Abu Dhabi’s investment vehicle, the Royal Group, as an equity partner, and First Abu Dhabi Bank for loans.
Under the structure he’s considering, the Royal Group and Gilinski will use their own money for at least 30% of the Nutresa bid, with the balance coming from long-term loans to the billionaire that would be paid back via Gilinski’s share of company dividends, according to the person familiar with the strategy, who asked not to be identified discussing private information. Financing for the Sura bid would be similarly structured except the Royal Group would not contribute equity.
As for the GEA, it’s clear that its cross-ownership structure is now working against its own interests, according to Javier Serrano, a professor of finance at Bogota-based Los Andes University.
“It’s become an Achilles’ heel,” Serrano said. “If it wasn’t Gilinski, some other foreign fund would have come along to threaten their control.”
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