Trefica of Honduras Mark Baines Jawad Haider William Myers FIN 570 Fall 2008 October 8, 2008.
-
date post
20-Dec-2015 -
Category
Documents
-
view
214 -
download
1
Transcript of Trefica of Honduras Mark Baines Jawad Haider William Myers FIN 570 Fall 2008 October 8, 2008.
The Company
Bekaert had original ownership Political unrest in S. American countries in early 1980’s Antonio Vente bought Trefica in 1984 Production and commercialization of wire-related products Rebar, chain-link fencing, nails, metal wire, wire mesh Annual wire drawing capacity at 72,000 metric tons Annual revenues at 483 million Honduran lempiras (1997) Choluteca, Honduras
Honduras
Second largest country in South America Bordered by El Salvador, Guatemala, Pacific and Caribbean Per capita income at $750 Emerging democracy Least developed economy in Americas 60% agricultural economy Emerging market
Emerging Markets
Markets and culture are demanding High rates of emigration to the developed world Fragmented markets Populations are youthful and growing Limited income and space Weak infrastructure Underdeveloped technologies Weak distribution channels 86% of the global markets are developing
Trefica’s Market
Virtual monopoly in 1980’s Lack of competition High tariffs and import duties Seller’s market Political turmoil in the region Honduras total external debt exceeded $ 3.3 billion Lempira devalued – exports grew Economic reforms introduced in 1990’s Consumer inflation running at 36% in 1991 Bank loan rates running at 32% in 1997
Problem Areas Financial distress Ownership and control Quality and Capacity issues Country debt Global competition Faulty machinery Sales and Marketing
challenges Least government support Red flags on Income statement
(Millions of Lempiras) Trefica Industry average
Selling expenses 8.8 1.3
Interest expenses 10.8 2.2
Causes and Effects (cont’d)
Illiquid financial sector
High political risk
Country debt Only S.T local debt
No foreign L.T debt
High selling expenses
Ownership issues
Currency devaluation
Financial distress
Issue Matrix
Marketing Strategy
COGS
Ownership & Control
Financing Resources
Importance
Urgency
LOW
LOW
HIGH
HIGH
Alternatives
Stay the course Find a U.S. partner Sell control to a Mexican supplier Sell control to LAEI
1. Stay the Course
Solidified relationship with LAEI Favorable cash position Ownership maintained by the Vente family Focus on restructuring debt
2. Find a U.S. Partner
20% equity position in Trefica Access to new distribution channels and
new credit Product rationalization Injection of US$1.9 million; capital base
increased to US$8.6 million Juan Antonio would remain as company
president
Buyout of LAEI Majority stakeholder of Trefica (66%) Injection of US$4 million; capital base
increased to US$10.7 million Juan Antonio to remain as company
president until 1999
3. Sell Control to a Mexican Supplier
Decision Criteria
Maintain ownership of Trefica Secure long-term debt financing Seek opportunities for increased
distribution and expansion
Ownership Breakdown
Stay the course Find a U.S. partner Sell control to a Mexican supplier
Sell control to LAEI
55%
35% 34%
20%
66%
45% 45%
100%
Vente family U.S. partner Mexican supplier LAEI
Debt Structure
1997 1998 1999 2000Short term debt in lempiras 101,746,784 33,638,283 32,879,043 31,090,195 Short term debt in US$ 52,415,010 18,112,922 17,704,100 16,740,874 Total short term debt 154,161,794 51,751,205 50,583,143 47,831,069 Long term debt (US$ debt) 16,930,243 96,109,381 93,940,124 88,829,130 Total debt 171,092,037 147,860,586 144,523,267 136,660,199
1997 2000
Alternative Analysis & Evaluation Alternative #1 - Stay The Course Generating increased cash flows, but no
accounting profit currently Need to pay down high floating interest short-
term loans which is unlikely on current path Ideal for family to maintain ownership but
requires time they don’t have Too risky an alternative with current limited
market access
Alternative Analysis & Evaluation Alternative #2 – Find a U.S. partner 20% equity and U.S. access would increase
capital base $1.9 million to $8.6 million (+28%) – a start but not enough
Brings needed distribution access to U.S. markets
Enables moving some production to U.S. with lower costs of selling and distribution
Not significant enough capital, but access to U.S. markets might be
Alternative Analysis & Evaluation Alternative #3 – Sell control to a Mexican supplier
Family ownership drops from 55% to 34% (-38%) of larger company - not good
Increases capital $4 million to $10.7 million (+167%), buys out LAEI – loss of major supplier of 10+ years
Good capital infusion, reduces cost of debt, but potential for loss of family interest is too much
Alternative Analysis & EvaluationAlternative #4 – Sell control to LAEI
Buys Vente family out completely, increasing family capital, losing the business – not certain this is the goal
$5 million for Vente family interest (75% of current capital structure) – “manageable”
Not certain Vente family wants to lose the business and future increased cash flow opportunities, so not an option
Alternative Selection Finding a U.S. partner is most viable solution
Key: Does Vente want capital or the business? Short term debt still somewhat of an issue with
small capital infusion Entry into U.S. for selling and distribution helps
by: Immediate opportunity for distribution of potential
overcapacity Greater avenue for capital growth in U.S. markets Opening of new foreign markets with U.S. aid Maintains interest of company with Vente family
Action Plan
0-3 months - Finalize U.S. partnership3-6 months - Open commercial sales center in U.S.3-12 months - Implement production rationalization
with U.S. 6-12+ months - Utilize U.S. distribution channels 12-24 months - Open commercial sales centers in
neighboring C.A countries/Mexico and beyond Ongoing - Distribute increased revenues toward
A/P for short term floating loan debtOngoing - Continue toward global sales
opportunities