Shareholder Revolt Makes It to Mexico : Stocks: Free-market reforms mean the companies must answer to the foreign investors on whom they increasingly rely.


To management, the issue was simple: The company was in trouble and a friendly investor with deep pockets had been found to provide some much needed cash.

Ordinarily in Mexico, where corporate shareholders rarely question management wishes, the proposal would have sailed through with hardly a ripple. But executives of Tubos de Acero de Mexico, known as TAMSA, recently got a taste of American-style shareholder activism when U.S. institutional investors launched a campaign to scuttle the deal to allow an Argentine steel baron to take control of the oil industry supplier. The Americans claim the deal is unfair to other shareholders.

TAMSA’s continuing shareholder revolt highlights the new realities Mexican companies must adjust to as they increasingly rely on foreign capital. Foreign stock markets, particularly U.S. exchanges, have provided billions of dollars in recent years to modernize Mexican plants and to restructure operations--necessities if Mexican companies are to compete under the nation’s free-market economic reforms.


A third of the trading in Mexican stocks now flows through U.S. markets. These foreign shareholders invited to join the once-clubby Mexican investor community--where insider shareholders have traditionally controlled most public companies--are demanding a greater say in how the companies are run.

Some Mexican companies have already made adjustments to accommodate foreign expectations.

“The boom in Mexican stocks trading on foreign markets is forcing corporations to improve their communications structure,” said Sergio Sanchez, an analyst at the Emerging Mexico Fund, a mutual fund of Mexican stocks. He said he has seen improvement in the information provided to shareholders in Mexican companies.

TAMSA executives--who collectively own about 18% of the stock--met with the U.S. institutional investors--led by a state of Wisconsin investment fund--to build support for their plan. That in itself was a novel concept in a country where four years ago most corporations did not even have investor relations departments. So far, however, TAMSA management has won only the first skirmish in the battle.

TAMSA, a maker of seamless steel tubes mainly for the petroleum industry, was one of the first Mexican companies listed on foreign markets, appearing on the American Stock Exchange during the oil-boom days of the 1970s. Since its debut, the company’s fortunes have sunk with the price of oil and its stock price has followed suit--from a historic high of $25 a share a decade ago to about $5 in recent years.

The low stock price attracted the attention of Argentine Roberto Rocca, who by March had accumulated 7% of TAMSA’s stock and announced intentions to “explore the viability and terms of a business coordination between” TAMSA and his company Siderca.

Last month, TAMSA’s management reached an agreement to sell a controlling interest to Rocca for about $75 million in cash.

TAMSA shareholders on Friday approved a technical requirement for the deal: an increase in shares outstanding. But the Wisconsin fund, which owns about 9% of TAMSA, has threatened a campaign to persuade other TAMSA shareholders in the United States to exercise their right to buy the new stock and shut out Rocca.

U.S. institutional investors are angry because Rocca would acquire stock at $5.65 a share--about market value but less than half the company’s book value.

“We think the price is too cheap to sell out a controlling interest,” said John Nelson, investment director of the growth equities fund for the Wisconsin Investment Board.

Other U.S. institutional investors, who hold slightly smaller stakes than Wisconsin, have been less outspoken and made known their reservations about the plan.

TAMSA officials would not comment. Analysts said management has told them the company needs Rocca because it is close to bankruptcy due to low orders from its biggest client--Petroleos Mexicanos, the government oil monopoly known as Pemex--and because of pressure from bank creditors.

However, some analysts believe Pemex orders will pick up as the oil giant completes a well-publicized restructuring. If that happens, Rocca will have made fools of other shareholders, said an investor who asked not to be identified.

While TAMSA is a special case--a troubled company with nearly three-quarters of its stock trading in the United States--other Mexican companies have been forced to adjust to the expectations of their foreign investors, or pay a price for resisting.

A year ago, Monterrey-based Cementos de Mexico, the fourth-largest cement company in the world, raised $600 million on international markets, supposedly to pay down its huge debt and expand in Mexico.

Six weeks after the offering closed, Cemex paid nearly $2 billion for two Spanish cement companies, taking on more debt. Furious investors dumped the stock, sending prices down 20%.

“A lot of investors were feeling like this was a move more appropriate for a company in a banana republic,” said a U.S. analyst who asked not to be identified.

Learning from such mistakes, retailer Liverpool announced in January--long before a preliminary agreement was reached--that it was negotiating an alliance with U.S. discount chain Kmart.

“Just five years ago,” said analyst Sanchez, “they would have said nothing until the agreement was completed.”

Seeking Capital in Global Markets The number of Mexican companies with stocks traded in the United States has grown rapidly in recent years. 1990: 4 1991: 18 1992: 27 1993*: 32 As a result Mexican firms represent more than 11% of foreign stocks traded on U.S. exchanges. United Kingdom: 24.7% Mexico: 11.8 Ireland: 10.6 Hong Kong: 7.1 Australia: 5.9 Other: 25.8 Since foreign firms were allowed in 1990 to make private placements with U.S. institutional investors, Mexican firms have led in the value of placements, though United Kingdom firms lead in the percentage of foreign placements. Value of placements United Kingdom: $60 million Mexico: $2.4 billion Percentage of foreign stocks placed United Kingdom: 34.7 Mexico: 30.6 Argentina: 4.1 Chile: 2.0 Other: 28.6 * number to date. Source: Bank of New York, Guzman & Co.