One starry night, Mexican television magnate Emilio Azcarraga Milmo was lounging on the deck of his yacht, bobbing at anchor in the Pacific. Looking up at the sky, he noticed a wandering speck of light. Told it was probably an errant satellite, Azcarraga immediately got on the phone to business associates in Mexico City, inquiring about the value of lost satellites. By the end of the evening, Azcarraga had spun out a rudimentary business plan for yet another ambitious company, a satellite-retrieval service.

The idea soon fizzled. But Azcarraga, one of Mexico's super-rich, is used to losses. His incursion into U. S. journalism, for example, went belly-up when his sports daily, The National, closed down in June, costing Azcarraga a cool $100 million. Until recently, it didn't matter much. Azcarraga's grip on a virtual private television monopoly in Mexico, Televisa, provided a seemingly endless flow of cash. That's the way Mexico has operated for years: The country's closed market has been a private fishing pond for a select handful of families with strong political connections.

But times are changing for Azcarraga and the rest of Mexico's powerful business plutocracy. Mexico's decision to enter a North American free-trade agreement with the U. S. and Canada promises an unprecedented wave of competition. Now, Mexico's cossetted power elite will have to take on the likes of Anheuser-Busch, Du Pont, 3M, and Turner Broadcasting, which are poised to flood the Mexican market with everything from Bud Light to Headline News.

HARD-PRESSED. As rich as they may be, members of Mexico's business elite will be hard-pressed to summon the capital and expertise they need to ward off the Americans. Mexico's largest snack-food company, family-owned Gamesa, for example, has already sold out to PepsiCo Inc. "This is just the beginning," says Lorenzo H. Zambrano, chief executive of Cementos Mexicanos, North America's biggest cement maker.

But tough shakeouts aren't all bad in the eyes of Mexican President Carlos Salinas de Gortari, the chief architect of the free-trade strategy. He recognizes that Mexico's economic system needs to be rejuvenated and modernized after decades of relative isolation. His goal is to use free-trade to encourage Mexico's power brokers to recast the structure of Mexican business. Of course, Salinas wants to do this on Mexico's terms, with top Mexican industrialists serving as partners for powerful foreign players. Thus, the often painful steps that Mexico's top industrial families are now taking will determine how well the country responds to a Yanqui invasion--and how open Mexico will be to the outside world.

Salinas is clearly not out to destroy Mexico's power elite--he's part of it. The son of a onetime presidential hopeful, he rode horses and studied with the scions of the country's richest families. Many of them live in lavish, high-walled estates in the hilly Lomas neighborhoods high above the smog-blanketed city.

To prepare for free trade, Salinas is asking his childhood friends to play a major role by buying up big chunks of state-run companies--from commercial banks to steel mills. This ensures that management remains in Mexican hands and draws back billions in Mexican capital flight. But to supplement their foreign stashes, Mexico's elite must also stalk capital markets in New York and London, seeking new and imaginative financing. Salinas also wants them to pare back their high-margin conglomerates into smaller entities better able to handle tough competition from the North.

Reflecting the enormous power of the Mexican presidency, Salinas is, in effect, shaping who wins and who loses in the new Mexico. But he faces risks. By turning to his cronies, Salinas isn't doing much to diversify corporate control. If free trade sours the Mexican economy, Salinas stands to take the blame. Leftist critics are already blasting him for handing the nation's treasures to the super-rich. Historian Lorenzo Meyer of the Colegio de Mexico compares Mexico's industrialists to their American counterparts of a century ago. "They're like the old robber barons in the U. S.," he says. "Connections are everything."

But Salinas recognizes that for Mexico's winners, the rewards can be enormous: a foothold in the $5.5 trillion North American economy. One such winner is Carlos Slim, 51, a portly Mexican-Lebanese financier who made a fortune riding the Mexican stock market in the 1980s. Then, last December, he cornered a gold mine, landing a controlling share of the phone monopoly Telefonos de Mexico. The $3.9 billion company earned a stunning $1.1 billion last year.

Most of this summer's privatization-jostling is in finance. The government is selling the entire commercial-banking system. The big prize is Mexico's No. 1 bank, Banamex. Bids are already in for the bank, whose market capitalization of $3.95 billion places it halfway between Chase Manhattan Corp. and Citicorp. Whoever wins control will emerge as a titan in North American finance.

The two leading candidates come from new and old money. From the old aristocracy: Fernando Senderos Mestre, 41, and his brother-in-law, Carlos Gomez y Gomez. On his 18th birthday, Senderos received an early inheritance of several hundred million dollars from his father, Manuel, the former owner of Telmex. Unlike other "juniors" in Mexico, the young Senderos didn't throw his money around. But he did make one extravagant purchase: a prize-winning, U. S.-bred horse, Jet Run. The horse paid off in other ways: Senderos' friend and teammate on the Mexican squad was a young rider named Carlos Salinas de Gortari.

VENEER OF IMPARTIALITY. Lined up against the Senderos team is Roberto Hernandez, 49, the epitome of Mexican new money. "Ten years ago," jokes one Senderos friend, "Roberto Hernandez couldn't even finance his American Express card." That changed in a hurry. During the 1980s, as principal owner of the brokerage firm Acciones y Valores, Hernandez rode Mexico's booming stock market to billions in profits. That gave him the base to bid for control of the phone company, which he lost to a group headed by Slim, Southwestern Bell, and France Telecom. Now, he thinks he has a good chance at the September sell-off of Banamex.

Such maneuvering is putting an uncomfortable spotlight on Salinas. Rumors and allegations of cronyism swirl around the privatization process. In response, the government goes to great lengths to create a sense of impartiality. At the Cabinet meeting to determine the new owners of Telmex, for example, the three bidders were listed as A, B, and C. But everyone knew which was which. "We're not selling oranges here," says one Cabinet secretary.

To blunt political attacks and win support for the privatizations, Salinas has limited foreigners to minority shares in most companies. What's more, in an attempt to fragment capital, he has established a 10% limit for personal holdings in banks. Both of these limits play well in the nationalist wing of his party. But in fact, they favor the super-rich. First of all, foreigners are limited to minority stakes within any Mexican investment group's bank holding. And by limiting individuals to 10% stakes in a bank, the government allows the rich to secure control without having to buy 51%, freeing up millions for other investments.

Consider how the government sliced up the giant telephone company into controlling and noncontrolling shares. That permitted Slim, head of Grupo Carso, to buy effective control with only 5% of its shares--an outlay of some $400 million. Joining him in the controlling block are Southwestern Bell and France Telecom, along with investors from Mexico's old-rich families. The government later sold the remaining shares in the Mexican market and in a $2 billion equity offering in foreign stock markets.

As Mexico's rich brace themselves for the North American free market, many will have little choice but to take private companies public. Take Azcarraga's Televisa. Few Mexican companies better illustrate the traditional tit-for-tat relations between the government and big business. Televisa has enjoyed a near-monopoly for decades, thanks in part to its staunchly pro-goverment politics. During the 1988 presidential campaign, Televisa's coverage flattered the ruling Institutional Revolutionary Party even more than its state-owned competitor. That pro-government line protected Televisa and discouraged the government from opening the door to competition.

NOVEL PREDICAMENT. But now that the government is selling its own nationwide network and negotiating the free-trade pact, Televisa's monopoly days are numbered. And Azcarraga finds himself in a novel predicament: He needs cash. The plan is to take Televisa public, selling 15% of the company for $300 million to investors in Mexico and abroad.

The restructuring trend has also reached Monterrey. After 100 years of dominating Mexico's steel, glass, beer, cement, and plastics markets, the web of families that holds up Monterrey's empires is undergoing a transformation. When Lorenzo Zambrano, an engineering graduate of Stanford University, saw free trade coming, he knew his family-owned Cementos Mexicanos could compete with only one product: cement. So he unloaded Cemex's petrochemical business, and two years ago, he went far into debt to buy Cementos Tolteca as well as affiliates throughout the U. S. Southwest. That made Cemex the largest cement maker in North America--and well-positioned to take on Yanqui competitors.

Others among Mexico's super-rich stand on shakier ground. If the Americans prevail in the free-trade talks, tearing down investment and finance restrictions, hordes of Americans and Canadians--and perhaps Japanese and Europeans--could storm the fiefdoms of Mexico's elite. In that case, chortles Zambrano, "they'll still be rich, but they won't be powerful anymore."

Don't count on it. The betting is that Salinas will succeed in attracting foreign capital while keeping the country's jewels, from the banks to its precious oil company, in Mexican hands. Salinas, a shrewd calculator, knows better than to put his powerful friends out of business.

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