The diversification process

Diversification is often seen as an extremely risky business strategy. When I found myself needing to apply it, I was fully aware of the risks my decision involved. Financial investments, the restructuring of activities, innovation, and mergers all kept me in suspense. In the course of this process, the group acquired interests in businesses in widely different areas such as gypsum products, packaging materials, plantations, real estate, forestry, water pipes, newspaper stand chains, private banks, steel production and marketing, cameras, microscopes, scientific instruments, electric and electronic devices, and watches, among many others.

Along the road we ran into some tight curves that taught us very valuable lessons. With few exceptions, I invested almost exclusively in distressed companies in need of basic restructuring. I consider myself fortunate to have found the right people to help me in that task. These people took over the daily management of my companies, allowing me to devote myself to long-term strategies and to my ongoing search for new business opportunities, planning new acquisitions, and evaluating new success strategies for my companies.

Many of these investments required vision and the ability to take risks. Since money markets are much more interested in short-term deals and are reluctant to take risks, I was able to take advantage of some unexpected and highly profitable opportunities.

The Story behind Swatch

One such arose as the result of the crisis in the Swiss watch-making industry. As its position in the market was being threatened by successful Japanese companies, a powerful group of banks took over ASUAG-SSIH, the largest Swiss watchmaker, and thus became the owner of several world-famous brands. But since watch-making was not their business, the banks were desperately looking for private investors.

I was contacted by a business consultant engaged by the banks to help them find investors. When he asked me whether I would be interested in investing in the watch industry, I answered yes, with the proviso that both he and I invested the same amount. I figured that he knew the industry much better than I did, and I thought that if he were willing to invest significant capital he must be sure of himself, making me more confident of my own investment. I also knew that his investment was going to be riskier than mine, as I had much more capital behind me.

We were disappointed when we went looking for additional investors; none of the country's major businesses was interested in investing in the watch business, in spite of its emblematic significance for Switzerland and our firm belief that it was a sound investment. Finally, a small group of private investors acquired one-third of the stock, while we took a third each. This entailed a much larger investment than we had originally anticipated, but gave us greater control over the company.

The outcome of this business adventure was the successful Swatch Group. As a member of the board's executive committee, I was actively involved in the initial development phase and the ensuing restructuring. And when that phase was satisfactorily concluded, I was happy to be able to sell my shares for a price much higher than I had anticipated.

Diversification in Latin America

Diversification plans were much more difficult to implement in Latin America. Dispensing with asbestos meant that we were forced to sell or close all plants producing construction materials, except for those in Central America, as we could not compete with companies that continued to use it. We remained in the plastic pipe business, initially a sideline for the group. But as this business became our only presence in several Latin American countries, I decided to expand it by acquiring new companies and enhancing already existing operations.

I saw great potential in the pipe business and the development of water transportation systems. The demand for drinking water is constantly increasing, particularly in large urban areas; water must also be transported over ever greater distances. Therefore, the companies in my group acquired and developed new technologies, invested in new and efficient machinery, modernized their management, and introduced eco-efficiency programs that made them the model for the entire sector in most Latin American countries.

Sustainable Forestry

One of my most gratifying investments in another area began in 1982 with a vacation in southern Chile. This was one of the few Latin American countries that I still did not know, and I decided to spend a few weeks there. But as far as I am concerned, being on vacation does not mean passing up on business opportunities.

The emerging forestry industry in the south of Chile, based on Pinus radiata plantations, caught my attention. Ten years prior to the Rio Summit, which emphasized sustainable development, I was already interested in the long-term business opportunities based on the ‘sustainable planting’ of pine forests. This allows the business’ productive base to grow significantly; and if they are properly managed, the quality and value of the forests can be increased.

During the three weeks I spent traveling from Santiago to Puerto Montt, I observed forestry activities in the Andean foothills from the viewpoint of a potential investor. At the time Chile was going through a severe economic crisis, the result of the fixed exchange policy implemented and staunchly defended by a group of economists known as the Chicago Boys. Companies were going bankrupt or were up for sale - or both. Those who had dollar reserves had taken their capital out of the country. I believed that the time was right to make a strategic investment in a new business area. But considering the nature of the forestry industry, I knew that this would be a long-term investment. The period of time between the planting and the cutting of a tree for commercial purposes is approximately 25 years, depending on the species.

On our way back to Santiago, my guide suggested that we stop and rest at a local family sawmill. We were welcomed by the manager, who took us on a tour of the facility and the nearby forest. I was impressed: one could feel the soundness, the efficiency, and the entrepreneurial spirit in each and every one of the different areas. I told the guide that I was interested in investing in the forestry industry. He replied with a smile that the owners were very proud of the family-owned business and that most likely it was not for sale. I explained that I was not interested in buying it outright but rather in investing as a partner, to strengthen and develop it together with the family.

I was then personally received by the owner. My Spanish was almost as poor as his English, but that did not keep us from agreeing on a shared vision of a prosperous future for the company. Before sunset, at a nearby service station, we had drawn up the five basic points of our agreement.

The sawmill owner visited me in Switzerland two months later. In one hour of negotiations, we agreed to be equal partners in the business.

This happened 20 years ago. Since that time, the forest area planted and managed by the company has grown significantly. At the present time, production is processed and earmarked for the manufacture of solid wood pieces (planks, moldings, door frames, etc.) and different types of pressed wood products, all marketed internationally. The company, Terranova, has also invested in forests and factories in Brazil and Venezuela. Most of these plantations have been developed on low-quality or degraded agricultural lands.

In April 2005, Terranova’s Shareholders approved the merger with Masisa.
Masisa produces and markets wood products internationally, operating in a framework of ethical, social, and environmental responsibility. It is one of the world's largest producers of wood boards. It is also the leader in Latin America, with an installed capacity of 2,270,000 m3, and is among the 100 most competitive companies in the region.

Masisa is today one of the main players in the region's forestry and wood industry, with plantation holdings of forests in Chile, Argentina, Brazil and Venezuela. The merger between Terranova and Masisa seeked to consolidate our business culture while respecting our history.