RightSide Commentary -Internationals

By Vivian Lewis
Updated: Tuesday, September 02 2008 05:09:PM

Ternium and Venezuela hit an impasse in their attempts to work out the terms of compensating the Argentinian steelmaker for Caracas taking control of Sidor, TX's Venezuelan sub. This is the second time the Hugo Chavez government has wound up trying to underpay a Latin American company for a nationalization. The earlier case involved Cemex, which is Mexican.

The problem over Sidor is the unions who already own 20% of the steelmaker, under its initial pre-Chavez privatization. Another 20% stake is held by the government. Now Veneuzela wants to take control but to keep Ternium in the pool as a minority partner to help run the business and sell Sidor's steel output. Given its rocky history with the unions, Ternium wants some guarantees that it will not continue to be a target, which Pres. Chavez indignantly refuses to consider.

The issue with Cemex was the reverse. To keep cement prices low in Veneuzela, the Chavez government wanted to stop exports entirely. Several European cement firms operating in Veneuzela simply accepted the government offer, but the Mexican firm refused.

It is unlikely that Caracas is deliberately trying to underpay fellow-Latin companies and pay full price to non-Latin companies in its nationalization campaign. After all, Hugo Chavez is aiming to win friends and influence people throughout Spanish America. Instead, the issue is probably that Latin American companies are more likely to resist the nationalization urge coming from a government in their region.

The Latin taste for statism threatens companies like Cemex and Ternium not just in Veneuzela, but in their home countries of Mexico and Argentina, and in other countries as well. That is why they are tougher to take over.

If Caracas persists in lowball compensation offers, the owners of CX and TX will go to international arbitration to get a full price for their assets in Venezuela. While Ternium is a relatively small company, it belongs to the same Argentine family as Tenaris, a Latin American multinational corporation which makes drilling pipe for oil and gas exploration, which also has heavy investments in Veneuzela. Cemex, of course, is a true multinational corporation which happens to be Mexican-owned. Both are fighting the good fight on behalf of private enterprise globally.