Potasio 150, Ciudad Industrial
Grupo Industrial Durango, S.A. de C.V. (also known as GIDUSA or Gidusa), is a Mexican holding company that, through subsidiaries, supplies high-quality packaging for a wide variety of consumer goods and industrial products, both in Mexico and the United States. It is the largest producer in Mexico of corrugated containers, containerboard, industrial paper, and molded-pulp egg cartons, and a leading producer of multiwall paper sacks and bags, plywood, particleboard, and lumber. In addition, Durango holds a half-share in a company that dominates the production of newsprint in Mexico.
Private Company: 1975--93
Grupo Industrial Durango was founded in 1975 in the Mexican state of Durango from the combination of a forest products transportation company and a regional wholesaler of building products. It consisted at the time of a small sawmill and five trucks, with annual revenue of $2 million. From its formation the company pursued a strategy of growth by acquisition and internal expansion, establishing plywood and particleboard plants during the following decade. Its transformation into one of Mexico's largest integrated packaging and forest products companies began in 1987, when it purchased about 75 percent of Grupo Industrial Atenquique, S.A. de C.V. from the federal government. (The remaining shares were purchased in 1996.) This company's principal products were containerboard, industrial paper, and corrugated containers. In 1988 Durango acquired Celulosicos Centauro, S.A. de C.V. from the conglomerate Grupo Industrial Alfa, S.A. de C.V. (later Alfa, S.A. de C.V.). This company, whose principal asset was a pulp mill, was producing virgin pulp and forest products. As part of the transaction, Durango purchased a high-capacity paperboard and industrial paper machine that was installed at a new company-owned paper mill in 1990. This machine was a 7.6-meter, twin-wire, state-of-the-art unit with a capacity of 240,000 metric tons a year of mottled white and white top-grade paper.
These two acquisitions, together with the installation of the Centauro machine, made Durango the largest containerboard and industrial paper producer in Mexico, in terms of capacity. In 1991, Durango acquired four independent multiwall sack and bag converters and purchased a group of plywood and particleboard companies. These purchases included Triplay Ponderosa de Durango, S.A. de C.V. and Maderas Moldeadas, S.A. and affiliates, producers of plywood, particleboard, and lumber, and Sacos y Envases de Mexico, S.A. de C.V., a producer of multiwall sacks and bags acquired from the Morodo group. In 1992 Durango's Atenquique operation opened corrugated container plants in Ciudad Guzman and Tuhitlan.
Durango, in 1993, acquired Carton Titan S.A. de C.V. from Alfa and Stone Container Corp. for about $155 million. Founded in Monterrey in 1936 by Eugenio Garza Sada to meet the growing needs of the beer, glass, and packaged snacks industries in the state of Nuevo Leon, Titan had evolved to become the largest Mexican corrugated container producer, in terms of capacity. It was also a leading Mexican producer of molded pulp products (primarily egg cartons) and a significant Mexican producer of containerboard and industrial paper. The Titan acquisition, which included paper mills producing medium, semi-chem kraftliner--both bleached and unbleached--also included a variety of other paper converting activities, including tubes and gummed paper. Also in 1993, Durango acquired Sacos Mexicanos, S.A. de C.V. from Cementos Apasco, S.A. de C.V. and three multiwall sack and bag companies from the Wellbanks group: Bolsas y Papeles de Mexico, S.A. de C.V.; Sacos de Tila, S.A. de C.V.; and Bolsas y Papeles de Jalisco, S.A. de C.V.
Weathering the Recession: 1994--97
By mid-1994 Grupo Industrial Durango owned 11 corrugated box plants, seven multiwall bag plants, four molded-pulp plants, four paper mills, three lumber mills, two plywood plants, a particleboard operation, and 400,000 hectares (about one million acres) of forests. Containerboard and industrial paper, produced at the Atenquique, Centauro, and Titan mills, included linerboard and corrugating medium, used in the production of corrugated containers. Kraft paper, made from virgin pulp, was the raw material for the company's multiwall bags. Durango was producing about 100,000 tons per year of unbleached kraft pulp for its own use and also was supplying pulp to the company plants producing molded products such as egg cartons.
In July of that year, the company, formerly privately owned by the Rincon family, made an initial public offering at 30.61 pesos ($8.75) a share in Mexico and a concurrent offering of American Depositary Shares abroad at $18 a share. This reduced the Rincon family's shares of the firm to 70 percent. The proceeds of $117.5 million were used to repay most of the indebtedness incurred to finance the Titan acquisition, which included a $95 million loan from Chase Manhattan Bank coming due. Durango also secured an additional sum of about $150 million by issuing seven-year bonds at a yield of 12 percent. Before the year was out, Durango had acquired six companies from the Dabdoub family group Comercializadora Industrial Gusymex, S.A. de C.V., thereby adding to its production network three corrugated container plants and a small paper mill.
The sudden capital flight from the peso in late 1994 led to a deep recession in Mexico the following year, but Durango remained profitable, earning 295.51 million pesos (about $38.65 million) on net sales of 2.96 billion pesos (about $387.18 million). Joel Millman of the Wall Street Journal later wrote that the 'timely' Titan purchase had given Durango 'the clout and customer base to attack the growing border market and provided a cushion of dollar-oriented sales during the recession that followed the 1994 peso devaluation.' Also in 1995, the company purchased Cartones y Empaques del Sur, S.A. de C.V., a company whose principal asset was a corrugated container plant in Tapachula, from PIC International Inc.
In 1996 Durango purchased Productos Industriales Ponderosa, S.A. de C.V. from Empresa La Moderna, S.A. de C.V. and minority shareholders for $32 million. This acquisition gave the company access to important forest products resources in the state of Chihuahua, where it previously had no forestry operations. Because the Ponderosa companies operated in a region bordering the United States and, historically, had exported almost half of their production to the United States, the purchase significantly strengthened Durango's export sales of forest products, including plywood, particleboard, specialized wood products such as fine wood veneers, and resin. Also in 1996, Durango acquired Central de Envases y Empaques, S.A. de C.V. from Grupo Industrial Garcia Franco. Its principal asset was a corrugated container plant in Mexicali, allowing Durango to further expand its business among the 2,600 factories in this area assembling goods for export to the United States, mainly in the electronics, textile, and auto parts sectors.
Durango's export business and consequent dollar-denominated sales enabled it to overcome the weakness of the peso and continued Mexican recession. In 1996 it had net income of 1.08 billion pesos (about $106.36 million) on net sales of 3.40 billion pesos (about $429.29 million). In 1997 it made its first U.S. acquisition, purchasing McKinley Paper Co. and certain related companies from Amcor Paper US, Inc., a U.S. subsidiary of Amcor Limited, for about $70 million. These enterprises were operating a containerboard and industrial paper mill in New Mexico and two fiber recycling plants, in New Mexico and Arizona. This group was renamed Durango International, Inc. 'Grupo Durango,' its chairman, Miguel Rincon Arredondo, told Joel Millman, 'has been able to outperform its global peers in a difficult business environment, because we take advantage of our integrated operations, especially in raw-materials supply, to cut costs.'
Further Acquisitions: 1998--2000
Durango, in early 1998, purchased, for about $20 million, plants in Houston and Dallas owned by Box USA Inc., plus a satellite facility in Nogales, Arizona, where cartons were being treated with wax for fruit and vegetable shippers from Mexico's Pacific coast. During the summer it signed a letter of intent to buy 23 box plants belonging to Four M. Corp. of Valhalla, New York, for $355 million, a transaction that would have included the assumption of $240 million in debt but would have made Durango North America's largest independent producer of corrugated packaging. Because of concerns over Durango's large long-term debt--which reached $557.5 million at the end of 1998--the deal was canceled in October. The company's depositary shares in New York were trading at less than $5 a share, compared with a high of $15.25 in early April. Durango recently had issued about $220 million in five-year bonds, leaving it with a ratio of 53 percent of total debt to capitalization.
The Wall Street investment community, according to one account, approved of Durango's efforts to turn its containerboard and industrial paper into value-added packaging products chiefly aimed at the border plants and export-oriented customers. It also approved of the company's greater vertical integration, evidenced by the high proportion of its containerboard production being utilized by its own converting plants. The company's network of recycled fiber collection centers throughout Mexico, its virgin pulp, and the efficiency of its plant operations were said to contribute to above-average profit margins. Nevertheless, analysts were worried that Durango's cash flow was not adequate, in view of its debt, the weak peso, and the declining price of paper in the international markets.
Durango moved into newsprint production in 1999 by purchasing the Mexican government's three newsprint mills from Grupo Productora e Importadora de Papel S.A. for $112 million. Only 49 percent of this acquisition was actually assumed by the group; the other 51 percent was purchased by the Rincon family's Corporacion Durango, S.A. de C.V. The acquired enterprise, formed into a new company named Pipsamex, was said to have annual sales of $240 million and monopolized the newsprint sector in Mexico, with a 90 percent market share. It had lost $24.6 million, however, during the first half of 1998, according to a Mexican financial daily. Pipsamex's mills had a combined capacity of 450,000 tons a year of newsprint and bond paper. Some 72,000 tons a year were being exported to Texas and New Mexico.
At the end of 1998 Grupo Industrial Durango had the capacity to produce 728,000 tons per year of containerboard and industrial paper (consisting of linerboard, corrugating medium, and unbleached kraft paper) at six mills, 601,000 tons per year of corrugated containers at 18 plants, and 70,000 tons per year of multiwall sacks and bags at three plants. It held two integrated pulp mills with the capacity to produce 200,000 tons per year of virgin pulp, of which it was Mexico's sole producer. The company also operated four molded-pulp egg carton plants and nine forest products plants producing plywood, particleboard, and lumber. Durango was supplying high-quality packaging for a wide variety of consumer goods and industrial products, including packaging used for consumer products, food, agricultural products, cement, and other industrial and construction products. By product, linerboard and packaging accounted for 89 percent of the company's sales in 1999. Approximately 45 percent of its revenues were derived from North American Free Trade Association (NAFTA) markets, with the remaining 55 percent from the Mexican market.
Durango's performance was poor in 1998, with net income of only 91.6 million pesos (about $13.5 million) on net sales of 5.58 billion pesos (about $523.7 million). In 1999 sales dipped to 5.39 billion pesos and increased only marginally in dollar terms (to about $554.9 million), but net income increased more than tenfold, to 1.01 billion pesos (about $102.3 million). The long-term debt fell slightly, to $543.2 million.
In January 2000 Corporacion Durango purchased Gilman Paper Co., a privately owned, New Jersey-based paper manufacturer with 1998 revenues of $380 million, according to Durango. Gilman chiefly was producing bleached paperboard for folding cartons, printing bristols, and food service products; kraft paper for bags; bleached and unbleached envelope papers; and other fine papers and specialty packaging papers. The purchase included a paper mill in St. Marys, Georgia, and three converting facilities in Georgia, Tennessee, and Pennsylvania, manufacturing business forms, flexible packaging, and multiwall bags. The purchase also included a short-line railroad to transport raw materials to the mill and deliver finished products to major connecting railroads. Gilman was employing about 2,100 workers.
Management--which, effectively, meant the Rincon family--held 87 percent of Grupo Industrial Durango's common stock in 2000, through Corporacion Durango (59 percent) and Administracion Corporativa y Mercantil, S.A. de C.V. (28 percent).
Principal Subsidiaries: Chapas Finas Ponderosa, S.A. de C.V. (50%); Durango International, Inc. (U.S.A.); Empaques de Carton Titan, S.A. de C.V.; Grupo Industrial Atenquique, S.A. de C.V.; Grupo Industrial Ponderosa, S.A. de C.V.; Grupo Pipsamex, S.A. (49%); Sistema Ambiental Industrial, S.A. de C.V. (26.2%).
Principal Operating Units: Forest Products Group; Packaging Business Group.
Principal Competitors: Georgia-Pacific Corp.; International Paper Co.; Kimberly-Clark de Mexico, S.A. de C.V.; Smurfit-Stone Container Corporation; Temple-Inland Inc.