Today, South America. Tomorrow the world?

12 October 2017


Chile-based industrial giant Masisa is disposing of its panel factories in Latin America. Austria-based company Egger is buying Masisa’s Argentine plant. Egger is a newcomer to production in Latin America - indeed, to production outside Europe at all. We spoke to Ulrich Bühler, CSO of the Egger Group about the strategy behind the acquisition.

Masisa Argentina posted sales of US$131m in 2016. The Masisa plant at Concordia in Argentina – which is shortly to become the Egger plant at Concordia in Argentina – has facilities for the production and lamination of particleboard and MDF panels. In 2016 it recorded production capacities of 165,000m3 of particleboard, 280,000m3 of MDF and lamination amounting to 274,000m3.

Egger has said that its acquisition of Concordia is part of its strategy of “continuing to grow on its own terms and to make itself future-proof through increasing internationalization.”

The first question to ask, is, of course, why does Masisa wish to sell? Masisa is big in distribution. Its strategy, it seems, is to concentrate its activities in forestry and in value added operations such as its chain of retail panel dealerships.

The company had been seeking for some time for a strategic partner for its manufacturing ventures, apparently without success.

“Masisa will focus its commercial activity on its forestry and higher added value businesses in the Andean Region, Central America, the US, Canada and other export markets” said the company.

“The board of directors of Masisa considered that this important decision - which implies ending the search process for a partner - represents the most attractive strategy for the company's shareholders, since it allows a significant value capture, long-term improvement of profitability, a reduction in future investment needs and significant reduction of the level of debt, reducing the ratio of Net Financial Debt to EBITDA from 4.2 times to a range between 2 and 2.5 times."

It expects to raise in excess of US$500m from its sales in Argentina, Brazil and Mexico. The Egger deal is valued at US$155m. But Masisa is not getting out of manufacturing altogether. The company will maintain its manufacturing capacity to supply the region in Chile and Venezuela. It will also keep its forests in Chile, Argentina and Venezuela, valued at more than US$560m. These have been a source of productive and financial stability for the company. Once these transactions are completed, it is estimated that the company will improve business profitability with savings of more than US$35m in financial expenses and a reduction of approximately US$15m of annual corporate expenses.

As we have said, Masisa will retain its Argentine forestry activities. These are not to be taken over by Egger, but a long-term partnership to supply wood from them to Egger has been agreed.

So much, then, for the Masisa end of the sale. What then is Egger’s gain from its purchase? We spoke to Ulrich Bühler, CSO of Egger, to explain that company’s motivation. Hitherto entirely European-based in its manufacturing, why does the company want to move into Latin America?

“Latin America is not new to us,” he said. “We have had a sales office in Chile since 2012, so we are familiar with the market. We have already learned how to sell from Europe to Latin America.

“But if we are only to sell imported products we can be no more than a niche player. You have to produce locally to be big.

“So the sales office was our first step. The opportunity to acquire Masisa’s Concordia plant was a logical second step. ”

So Latin America makes sense – but why Argentina, a country that has had hard times and a terrible economic downturn? Masisa were offering assets in Brazil and in Mexico also - assets which Egger has not bought into.

In one sense of course it makes sense to buy at the bottom of a down-turn – as long as you are reasonably sure that a bottom has been reached and an upturn is on the way. Egger does seem to have that belief. The company’s Group Management spokesman Thomas Leissing has said as much – see page 10 – and independent forecasters point to business-friendly reforms adopted by the Macri administration and expect the Argentine economy to rebound this year and next. Economic activity recorded its best performance in nearly two years in June.

Mr Bühler emphasises another reason for choosing Argentina over other Latin American countries. “Brazil is a much bigger market, but it is not a consolidated one.

We had to choose which basket to put our eggs in. Argentina is familiar to us. It is distribution oriented, and we are taking the Masisa distribution team on board with us.”

And the Masisa operation in Argentina is particularly attractive for another reason: “Masisa Argentina had a 35% market share in Argentina. It is the Number Two player in that market, so that is an important role to acquire. There is little point in buying something small that you then have to build into significance. That is not the case with Masisa. This is a significant player already. “ Alongside the Concordia plant Egger will also take over Masisa’s established Placacentro Argentinean dealer network, which is independently run by 42 partners. Egger has said it plans to retain all 500 Masisa Argentina employees.

“The Masisa management team, we know them, and they will stay with us, and they are good guys who have developed the market there under hard circumstances. A local management team is the Egger style,” says Mr Bühler.

“And this is a good starting place for us. We will be able to ship particleboard and MDF to the Latin American market from Concordia, so we can export. “

Given Egger’s stated ambitions to become a global player, why is the company not buying Masisa’s forests in Argentina also? Will it remain content with the long-term supply arrangement with Masisa that has been reported - a partnership, perhaps? - or does that reliance on a third party conflict with Egger’s aim at word class status?

“Firstly, one can only buy what is for sale, and the seller’s desire was to keep those forests” said Mr Bühler. “Secondly, we have negotiated a long-term supply agreement with Masisa. This is essential to us, but still lets us buy from third parties if that is necessary.”

“Nor does the supply arrangement with Masisa make us partners in any formal sense. Each company remains separate. We will be competitors in some markets, for example in the Andes region and in Chile. It is not the Placas do Brasil concept, where many independent owner have come together to run a single business.

“None of this conflicts with our aim to become a global company. There is no conflict as long as security of supply is assured. We have no need to own our own forests. We have them in some countries, but generally we do not, and we buy our wood from outside suppliers.

“And what does one mean by ‘global’? On the production side - Yes, this is our first step towards owning production outside Europe.

But we have been for 30 years in Japan, in China, in Australia, exporting our home production into those markets. So we have been selling globally for 30 years; now we are beginning to produce globally as well. “

The same is true for Egger in North America – where, fortuitously, a comparable expansion to the South American one was announced almost simultaneously. “We have been selling in the US in the past.

Fortunately and significantly for Egger, within the space of two weeks we are able to announce not only the Latin America purchase but also our greenfield project for a particleboard plant in North America.” “That is also hugely important from our side.

We shall have melamine and chipboard production there from the end of 2018.” So Egger goes global. “Global is a big word” says Mr Bühler. “Where shall we be three or five years from now? As you know, we are also building a new panel plant in Poland. Even for us it is a big step, to have three such large projects running in parallel. Getting all those three projects running sweetly will absorb much of our attention over the next few years. After that, there may be further investment, in Europe or elsewhere, but we cannot yet say. “

“And of course we will need to retain our existing plants and keep them up to date in new technology. Investment will have to go there. We will be kept fully occupied with these!”

“And the future beyond that? We cannot yet say…”

Ulrich Bühler, CSO of Egger
The Masisa particleboard and MDF plant at Concordia, Argentina, now sold to Egger