The Star Behind Mexico's Pulsar

In the midst of a bitter recession, Alfonso Romo is going global

In a remote laboratory deep in the heart of impoverished, revolt-torn Chiapas, Mexico, plant pathologist Velitchka Blagoeva Nikolaeva picks up a papaya and points to a thumb-size, 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 Bulgarian, came to Chiapas thanks to Alfonso Romo Garza, a Mexican cigarette and insurance tycoon with a passion for high-tech farming. Her job is to genetically engineer papayas for resistance to the virus. 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 Romo, who is founder, CEO, and majority owner of Pulsar Internacional, a holding company with a major presence in Mexico's tobacco, produce, packaging, and insurance businesses. With about $1.8 billion in annual sales, Pulsar is among the 15 largest Mexican companies. Its cigarette and seed unit, Empresas La Moderna, trades on the New York Stock Exchange as an American depositary receipt.

At a time when many Mexican companies are still stuck in 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 debt to make global bets on businesses he thinks will pay off big.

"TREMENDOUS FUTURE." In the past 15 months, he has spent more than $480 million for control of three 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 will soon merge with DNA Plant Technology Corp., a publicly held California company specializing in genetically engineered food enhancement. 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, a director of The McGraw-Hill Companies, the publisher of BUSINESS WEEK, to set up a new investment bank for Pulsar. And Romo, who owns Mexico's biggest insurance company, is bidding for Asemex, a large insurer that will be privatized in early April. That would give him a 30% share of Mexico's fast-growing insurance market.

Romo is one of a few entrepreneurs who are changing the way Mexican companies do business. They believe that they must diversify internationally, if only to weather the economic storms at home. They emphasize technology and, especially, human capital. 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. Romo is also trying to make Mexico's underdeveloped agricultural industry an efficient supplier of premium produce to the U.S. and other international markets. So far, so good: While more than 1 million Mexicans have lost their jobs in this crisis, Romo's 25,000 employees have kept theirs.

It is not yet clear how Romo's diversification into biotech--which substantially increased the company's debt burden--will work out. David Nelson, a food and agribusiness analyst for NatWest Securities Corp., says: "It has always been difficult to convert agricultural research into financial returns."

WELL-CONNECTED. Romo's personal life is frenetic. At 6:30 most mornings, he exercises one of his 60 horses at La Silla ("The Saddle"), his stable and showgrounds just outside Monterrey. His goal is to make Mexico's 1996 Olympic equestrian jumping team. Switching gears, Romo hops into his helicopter for the short flight to Pulsar's headquarters.

Although Romo's business instincts are indisputable, his connections haven't hurt. Romo is married to the daughter of Alejandro Garza Laguera, a key member of the wealthy Garza Sada clan that has long dominated Monterrey. And in 1985, an old schoolmate, Fernando Chico Pardo, finance chief of Grupo Carso, asked Romo if he would be interested in 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 the shares, but he wanted to avoid antitrust problems. With his father-in-law and others, Romo paid $40 million for a controlling stake.

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 price and quality competition. Romo also successfully lobbied 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.

Romo relies heavily on his talented corps of managers, most of whom have worked together since the 1970s. Many of them attended the same primary school as Romo in Mexico City. "Romo has one of the best management teams I've seen in Mexico," says Lorenzo Zambrano, CEO of Cemex, another company that has expanded abroad. That management depth has helped Romo enter a range of businesses. In 1988, he bought a nearly bankrupt insurance company, La Comercial, and turned it around. In 1993, Pulsar bought another and merged the two to create Comercial America, with $700 million in annual premiums.

DISASTROUS YEAR. The only business where Romo has 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.

But Romo has retained the confidence of the international financial community. In November, 1995, Pulsar subsidiary Empresas La Moderna won a $130 million syndicated loan--the first such loan to a Mexican company since the 1982 debt crisis.

Romo thinks Mexico will pull out of its crisis. "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 likely to join in the recovery--whenever it happens.

Before it's here, it's on the Bloomberg Terminal.