The Star Behind Mexico's Pulsar

While many Mexican companies stagger, Alfonso Romo is going global

In a remote laboratory deep in the heart of poor, revolt-torn Chiapas, Mexico, plant pathologist Velitchka Blagoeva Nikolaeva picks up a papaya and points to a thumb-sized, ring-shaped blemish. "This ring-spot virus can destroy whole plantations of papaya," she says, speaking Spanish with a thick Slavic accent. "We're trying to wipe it out."

Nikolaeva, a native of Bulgaria, came to Chiapas, home of the Zapatista rebels, thanks to Alfonso Romo Garza, a Mexican cigarette and insurance tycoon with a passion for high-tech farming. Romo brought her to try to genetically engineer papayas so that they will be resistant to the virus. Down the hall, another group of Romo technicians, dressed in protective clothing, are breeding wasps to control crop pests. Cutting-edge biotechnology and multimillion-dollar research and development aren't qualities often associated with Mexican companies. But they are rapidly becoming the hallmarks of the businesses of Romo, who is founder, CEO, and majority owner of Pulsar Internacional. Pulsar is a holding company whose properties include major players in Mexico's tobacco, produce, packaging, and insurance businesses. With about $1.8 billion in annual sales, Pulsar is among the 15 largest Mexican industrial and financial groups.

STRONG FRANCHISE. At a time when many Mexican companies are still reeling from the country's bitter recession, Romo is on the move. Cashing in on his strong franchise in Mexico's cigarette industry, Romo issued stock and international debt to make global bets on businesses he thinks will pay off big in the future. In the past 15 months, he has invested more than $480 million to buy control of three international seed and biotech companies, U.S.-based Asgrow Seed Co. and Petoseed and Dutch seed company Royal Sluis, giving him a 22% share of the world vegetable seed market. He is close to wrapping up a merger with DNA Plant Technology Corp., a publicly held California company specializing in DNA-engineered enhancement of food products. "Seeds are going to play an important role in producing foods with more taste and vitamin quality," says Romo. "I see a tremendous future in this area."

Romo is also making a splash in financial circles. He recently persuaded former Finance Secretary Pedro Aspe Armella to set up a new investment bank for Pulsar. And Romo, already owner of Mexico's biggest insurance company, is preparing to make a bid for Asemex, a large insurer that the government is privatizing at the end of March. That would give him a 30% share of Mexico's fast-growing insurance market.

Romo is one of a handful of entrepreneurs who are changing the way major Mexican companies do business. This group believes that their companies must diversify internationally if only to weather the catastrophic economic collapses Mexico can't seem to escape. They are also putting a higher value on technology and, especially, human capital than did their hard-nosed predecessors. In Chiapas, for instance, peasants working for Romo spend an hour a day learning the three Rs. "I don't believe cheap labor is the basis of Mexico's future," Romo says.

Thanks to Romo's recent acquisitions, 43% of Pulsar's agribusiness and tobacco revenues now come from overseas operations or exports, compared with just 5% three years ago. But Romo is also trying to transform Mexico's underdeveloped agricultural industry into an efficient supplier of premium produce such as seedless eggplants and tomatoes with a longer shelf life to the U.S. and other international markets. He has pumped tens of millions of dollars into agribusiness ventures and R&D in investment-starved Chiapas. While more than 1 million Mexicans have lost their jobs in the current crisis, Romo has not laid off any of his 25,000 employees.

It is not clear yet how Romo's diversifications will work out. David Nelson, a food and agribusiness analyst for Natwest Securities Corp. in New York notes "it has always been very difficult to convert agricultural research into financial returns." But he thinks Romo's prospects are "very good" if he sticks to vegetable seeds and avoids major grain crops where there is intense competition.

WELL-CONNECTED. Romo's personal life is frenetic. At 6:30 most mornings he can be found exercising one of his 60 horses at his stable and showgrounds, called La Silla ("The Saddle"), just outside of Monterrey, Mexico's industrial capital. With the imposing Sierra Madre mountains as a backdrop, Romo trains intensely in hopes of making Mexico's equestrian jumping team for this summer's Olympic games. Switching gears, Romo hops into his eight-seat helicopter for the eight-minute flight to Pulsar's headquarters downtown.

Although Romo's business instincts and determination are the big reasons for his success, his connections have also given him a boost. It hasn't hurt that he is married to the daughter of Alejandro Garza Laguera, a key member of the wealthy Garza Sada clan that has traditionally dominated Monterrey. In 1985, an old schoolmate, Fernando Chico Pardo, finance honcho of Grupo Carso, called to see if Romo would be interested in buying control of Mexico's biggest cigarette producer, Cigarrera La Moderna. Carso Chairman Carlos Slim Helu, who owned Cigatam, Moderna's chief competitor in cigarettes, had been buying up Moderna shares, which had been slammed by yet another economic crisis. But Slim wanted to get rid of the shares in order to avoid antitrust problems. With other investors, including his father-in-law, Romo paid $40 million to buy control of the company. In retrospect, it seems like a no-brainer: The company had enough cash on hand to easily finance the acquisition, but many Mexicans passed on the deal.

Critics say that Slim's sale of Moderna to Romo was an effort to create another of Mexico's many "duopolies"--industries controlled by two like-minded entrepreneurs with little competition on price and quality. Romo also helped his cause by successfully lobbying the government of then-President Carlos Salinas de Gortari for an easing of price controls and excise taxes. Today, Moderna has a 53% market share and this year expects to export $70 million in cigarettes.

Leveraging off his lucrative cigarette franchise, Romo in 1988 bought a nearly bankrupt insurance company, La Comercial, and proceeded to turn it around. Five years later, Pulsar bought another insurance company and merged it with the first, creating Comercial America, with $700 million in annual premiums.

Romo relies heavily on his talented core group of managers, most of whom, now in their forties, have worked together since the 1970s. Several were primary school buddies back in Mexico City, where he was born. "`Poncho' Romo has one of the best management teams I've seen in Mexico, and it's excellent at the international level, too," says Lorenzo Zambrano, CEO of Cemex, another company that has expanded overseas.

DISASTROUS YEAR. The only business where Romo has really stubbed his toe is the brokerage house Vector Casa de Bolsa, which lost around $21.8 million in 1995--one of the highest losses in a disastrous year for Mexico's brokerage firms. Romo, the majority owner, and other Vector shareholders had to reach into their own pockets to the tune of $65 million to help cover losing positions. The experience soured Romo. "I never understood this brokerage business, and I never really liked its short-term view," he says. Romo is now shifting his financial group's focus toward asset management and investment banking.

But Romo has managed to retain the confidence of the international financial community. In Nov., 1995, Pulsar subsidiary Empresas la Modema, which does not include Vector, won a $130 million syndicated loan--the first such loan to a Mexican company since the 1982 debt crisis. He has also brought in Aspe, a director of The McGraw-Hill Companies, the publisher of BUSINESS WEEK, to attempt to persuade international investors to put up capital for midsize Mexican companies.

Romo is optimistic that Mexico will pull out of its crisis fairly soon. "Because of these problems, we're having to carry out a major housecleaning, but that doesn't mean the country is going to disappear," he says. And Romo looks well positioned to join in the recovery--whenever it happens.

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