Brazil's Peerless Bargain Hunter

How Julio Bozano has cashed in on free-market reform

He's a kind of Warren Buffett South. From elegant headquarters in downtown Rio de Janeiro, Julio Bozano presides over a sprawling empire, ranging from a leading investment bank to shopping malls and a coffee plantation about the size of Connecticut. The 60-year-old billionaire is chairman and chief shareholder of Companhia Bozano, Simonsen. While his conglomerate currently numbers 30 companies, Bozano is on a buying and selling spree, taking stakes in floundering companies from steelmakers to petrochemical producers and turning them around for sale at fat profits.

Among corporate bargain-hunters, Bozano has few peers. In the past five years, the soft-spoken, silver-haired executive has led groups that bought and, with stunning speed, revived a half-dozen state companies. This year, Bozano Simonsen, which has assets of more than $6 billion, cashed in its stakes in steelmakers Usiminas and Siderurgica de Tuberao and electric utility Escelsa for a combined capital gain of $428 million (table). It is on the verge of turning planemaker Embraer, which it bought with pension-fund partners in December, 1994, into a money-maker. And it is now weighing bids on other state-run businesses that Brazil plans to privatize, from railroads to mines.

But Bozano isn't much interested in what his companies produce and sell. "We just try to increase the value of our investments," he says, seated at a conference table surrounded by his collection of contemporary Brazilian paintings. "A company's attractiveness depends on its price, not its sector."

Bozano is an exemplar of a breed of aggressive Brazilian investors unleashed by President Fernando Henrique Cardoso's anti-inflationary Real Plan, which has forced restructuring in both the state and private sectors. "You have a completely different macroeconomic environment than you had three years ago," says Marcelo Carvalho, chief economist for J.P. Morgan & Co. in So Paulo. "Bozano Simonsen has been able to take advantage of that."

In another kind of corporate overhaul, Bozano Simonsen is currently revamping Rio de Janeiro state bank Banerj, which was losing $35 million a month, in preparation for its sale on Dec. 17. Under a contract it won last December, Bozano is collecting a $36 million fee linked to its success in resuscitating Banerj, plus a 5% cut of the auction price, set at a minimum $465 million. Among prospective bidders are U.S. companies such as General Electric Capital and leading Brazilian banks.

SIMPLE RECIPE. In a more traditional investor's role, Bozano Simonsen plans to bid on Dec. 13 in the auction of a rail line in southern Brazil. And flush with cash from sales this year of long-held mining businesses as well as turnaround ventures, Bozano Simonsen could go for a piece of Brazil's biggest privatization prize: mining giant Vale do Rio Doce (CVRD), which the government plans to start selling off next year. When asked about CVRD, Bozano's weathered face lights up. Removing a Barclay cigarette from his lips and smiling broadly, he says: "We are interested in any privatization."

Bozano's recipe for success in such ventures is simple. Buy a company that generates plenty of cash but spends too much and is overstaffed. Install an executive with broad experience in the sector to apply the Bozano strategy. Trim every layer of personnel, tighten purchasing, and find out what your customers want. Then, when the biggest gains have been made, get out. "When we can't increase the value anymore, that's when we look at selling," says Paulo Ferraz, CEO of the group's financial flagship--Banco Bozano, Simonsen-- and Julio Bozano's right arm. Ferraz says Bozano Simonsen is comparable to such investment groups as Warren Buffett's in the U.S. "I think Buffett is like us in that it doesn't matter if it's diamonds, retail, or Coca-Cola, as long as he's creating value," he says.

The company has its critics. "They go in hard and then pull out once the easy kill is over," says a former Bozano Simonsen executive. "Their wealth is built on stripping distressed assets." But Bozano and Ferraz point out that the group held on to Usiminas for five years and its mining properties for 18 years before selling them off. It continues to hold agricultural and real estate investments made in the 1970s.

Although Bozano Simonsen usually doesn't take majority stakes, it insists on a major decision-making role in companies it buys into. For example, it bought just 4.5% of the total shares in Usiminas, including 9% of voting shares, but was the key to the steelmaker's restructuring, with Julio Bozano heading Usiminas' board.

The most radical makeover was at Tuberao, which Bozano Simonsen and partners took over in 1992. The company had been losing $150 million a year. By the time Bozano Simonsen sold its 33% stake last April, it had reaped a 110% annual return on investment, including a $327 million capital gain plus four years' dividends. And Tuberao now may be the world's lowest-cost producer of liquid steel.

The tycoon behind such lucrative turnarounds is an intensely private man. Born in the southern gaucho state of Rio Grande do Sul but raised in Rio de Janeiro, Bozano avoids public appearances, preferring to spend his spare time breeding horses in Argentina and Florida and adding to his art collection. He won't say how much he's worth, but maintains that media reports that put his fortune at $2.5 billion are inflated. Nor will he comment on a recent Brazilian magazine article that said he had settled $100 million on his ex-wife.

While taking compulsory navy training, Bozano befriended Mario Henrique Simonsen, who later became Finance Minister. Bozano, an uninspired student, and the intellectual Simonsen formed a financial-services company in 1961, when Bozano was just 25. It became Banco Bozano, Simonsen in 1967, specializing in loans and investment fund management. In the early 1970s, Bozano began building his empire, acquiring companies in manufacturing, mining, and real estate. Today, he owns 91% of the group's voting shares, while Simonsen, who left management to Bozano, has about 5%.

BIG SWAP. In July, Bozano Simonsen exchanged its mining investments for the 25% share in Bozano Simonsen that South African giant Anglo-American Corp. had acquired over the last two decades. Staying in mining, Bozano says, would have required costly investments for relatively low returns. But observers think Bozano and Anglo-American might soon rejoin forces to bid for a chunk of CVRD.

Bozano Simonsen's focus on returns sharpened, analysts say, with the rise of Ferraz, a 42-year-old Harvard University MBA who joined the bank in 1986 and became president in November, 1993. Ferraz cut the payroll from 1,400 to 300 and applied his rule: "Don't do anything you're not good at." He "took it to the extreme," he says, by getting the bank out of everything from checking accounts to employee-benefits administration, which he outsourced. Profits in the first half of 1996 totaled $96.7 million as compared with $30.6 million for all of 1993, the year Ferraz took over. When asked who deserves the credit for the bank's turnaround, Bozano and Ferraz point to each other. "Paulo is like a son Julio never had," says a former employee, noting their rapport.

The Banerj deal demonstrates Ferraz' bold approach. Betting on Bozano Simonsen's ability to revamp the state bank, he won the contract with an offer to accept just one symbolic cent as a fixed fee, plus 20% of the improvement in Banerj's balance sheet and 5% of its sale price. Most competitors asked for millions of dollars in fixed fees. Some later complained that Bozano Simonsen's long-standing relations with the Rio state government gave it an advantage in the bidding. But it's hard to argue with the results. With measures such as cutting nearly one-third of Banerj's 12,000 employees and closing 27 branches outside Rio state, Ferraz brought the bank to the breakeven point within six months.

After its experience with Banerj, Bozano Simonsen would be an obvious candidate to turn around other big losers such as Sao Paulo's state bank, which will likely have to be overhauled before it is put up for sale. But will Bozano Simonsen bid? You can almost count on it, if the price is right.

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