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Owens-Illinois Seizure by Chavez May Undermine Venezuela's Empresas Polar

Venezuela’s plan to expropriate the local unit of glassmaker Owens-Illinois Inc. may undermine Empresas Polar SA, the South American country’s largest company and a frequent target of President Hugo Chavez’s criticism.

The takeover will weaken closely held Polar, Venezuela’s biggest beer and food producer, by putting its supply chain under government control, said Rafael Alfonzo, president of Caracas-based researcher Cedice. Combined with the expropriation earlier this month of Agroislena C.A. Sucesora de Enrique Fraga Afonso, Venezuela’s biggest farm-supply business, the move gives Chavez significant sway over Polar, Alfonzo said.

“The expropriation of Owens-Illinois is part of a government project to create a food hegemony and the total takeover of the food supply,” Alfonzo said in a phone interview. “If you control the supply chain, there is no need to take control of a company like Polar.”

Chavez’s takeovers are deepening a socialist revolution that has led to the nationalization of oil companies, fertilizer makers, food processors and more than 6 million acres (2.5 million hectares) of farms and ranches. In June, Chavez declared “an economic war” on the “bourgeoisie,” singling out Polar owner Lorenzo Mendoza for allegedly manipulating its employees and trying to undermine the government.

Shares in Owens-Illinois, the world’s largest producer of glass containers, fell the most in three months in the U.S. after Chavez announced the expropriation last night, citing the Perrysburg, Ohio-based company for “exploiting workers.”

‘Expropriate It’

“The expropriation is already ready of this glass company,” Chavez said in comments carried on state television. “What’s it called? Owens-Illinois. Expropriate it.”

Chavez blames capitalism for the highest inflation rate among 78 economies tracked by Bloomberg and a recession that’s continued even as neighbors Brazil and Argentina post growth. The drive to construct a socialist economy has resulted in international arbitration cases with Exxon Mobil Corp., ConocoPhillips and Mexican cement maker Cemex SAB.

Chavez devalued the bolivar for the first time since 2005 in January and created a multi-tiered exchange system as he struggled to close a budget deficit and slow capital flight. The devaluation hurt Owens-Illinois by reducing its revenue in dollar terms, said Chip Dillon, a paper and packaging analyst for Credit Suisse Group AG in New York.

The expropriation “gets rid of an uncertain element” for the company, Dillon said.

Owens-Illinois makes beer bottles, water bottles and containers for baby food and perfume, among other products. Polar is a “major customer,” Stephanie Johnston, an Owens- Illinois spokeswoman, said in a telephone interview today.

Polar spokeswoman Ivana de Guerrero declined to comment.

1,000 Employees

The military arrived at the glass company’s Los Guayos factory early this morning, Johnston said. The Los Guayos site and a plant in Valera employ 1,000 people and account for less than 5 percent of Owens-Illinois’s global segment operating profit. Both are still operating, Johnston said.

Owens-Illinois declined $1.48, or 5 percent, to $28.14 at 3:09 p.m. in New York Stock Exchange composite trading, after touching $26.86, for the biggest intraday percentage drop since July 29. The shares lost 9.9 percent this year before today.

Owens-Illinois said in an e-mailed statement today it was surprised to learn of the decision and is willing to work with the government “to better understand the situation.”

Owens-Illinois has been operating in Venezuela for more than 50 years and provides glass bottles to customers including Nestle SA, PepsiCo Inc., Anheuser-Busch InBev NV and Diageo Plc.

Worker Protest

Johnston said Owens-Illinois is committed to complying with Venezuelan law.

Employees of Owens-Illinois at the Los Guayos plant in Carabobo protested the expropriation, newspaper El Carabobeno reported. Union leader Rigoberto Mendez said employees at the plant were happy with working conditions.

“We are going to defend the company to the last,” Mendez said in comments carried on Globovision. “We want our right to work to be respected.”

Chavez also squeezed Polar out of minority stakes in ventures with Casino Guichard Perrachon SA this year and the fertilizer maker Fertinitro, which the company operated along with U.S. chemicals company Koch Industries Inc.

Polar, whose president Mendoza was named Venezuela’s second-wealthiest man this year by Forbes magazine with a fortune of $3.5 billion, also runs a venture with PepsiCo Inc. and makes Harina P.A.N., the staple corn flour to make arepas, the flat cakes that are a staple of the Venezuelan diet.

To contact the reporter on this story: Charlie Devereux in Caracas at cdevereux3@bloomberg.net; Corina Rodriguez Pons in Caracas at crpons@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

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