Bloomberg News

Chavez Says Venezuela to Move Against Smurfit Kappa Farms

September 01, 2011

(Updates share price in sixth paragraph, company earnings in 13th paragraph.)

Sept. 1 (Bloomberg) -- Venezuelan President Hugo Chavez ordered the removal of Irish cardboard maker Smurfit Kappa Group Plc from all its farm land in an agricultural state as he deepens a push to seize large land holdings from private owners.

“We need to remove Smurfit from every square meter in Portuguesa,” Chavez said during a phone conversation with his agriculture minister broadcast on state television. “How long will they damage the land with those trees that dry out our rivers? We’re going to act faster, that’s an order I’m giving.”

Agriculture Minister Juan Carlos Loyo said Smurfit still operates on about 12,000 hectares (29,640 acres) of land between the central plains states of Portuguesa and Lara. Chavez seized 1,500 hectares of land from the Dublin-based paper products company in 2009. Smurfit’s eucalyptus plantations have dried sources of water for irrigation in Portuguesa that should be used to grow vegetables, Chavez said.

The president didn’t specify whether the government is looking to seize all of Smurfit’s land holdings in Venezuela or some plots dedicated to tree farming.

Chavez, who is receiving chemotherapy treatment in a Caracas military hospital after having a cancerous tumor removed in Cuba in June, continues to exercise his presidential duties and has called on followers to deepen his socialist revolution ahead of elections next year. Chavez also seized a cattle ranch from the U.K.-based Vestey Group Ltd.

Smurfit’s shares fell 0.1 percent to 5.51 euros in Dublin after falling 4 percent in earlier trading. In the year to date, the shares are down 24.5 percent.

‘Precautionary Measures’

The government has turned seized farm land over to cooperatives of community farmers in what Chavez says is social justice while critics of his policies say food production has waned amid the land grabs.

The Irish company said in its second-quarter earnings report that it began talks with the Venezuelan government in July regarding a plot of land.

“Venezuelan authorities have issued precautionary measures over a further 7,253 hectares of the Group’s forestry land, with a view to acquiring it and converting its use to food production and related activities,” the filing said. “Management are in discussion with the authorities.”

‘Just the Forests’

Smurfit CEO Gary McGann said in a November teleconference that the risk of nationalization had heightened after Chavez lost a two-thirds majority in the National Assembly and following the seizures of a unit of glass bottle maker Owens- Illinois Inc. and a fertilizer plant partly owned by Koch Industries Inc.

The move comes as no surprise considering the government had already said it might seize more of Smurfit Kappa’s land in Venezuela, Robert Eason, an analyst at Goodbody Stockbrokers in Dublin, said in a note to clients.

“This event has been well flagged by the company’s management so it’s not a big issue,” Eason said in a telephone interview from Dublin. “The important thing is that Chavez is not looking to get his hands on all of the production assets, just the forests.” He has a buy recommendation on the stock.

Venezuela represented about 7 percent of Smurfit Kappa’s earnings before interest, taxes, depreciation and amortization and 4 percent of total assets, Eason said in a report today.

--Editors: John Brinsley, Ben Richardson

To contact the reporters on this story: Daniel Cancel in Caracas at dcancel@bloomberg.net. Charlie Devereux in Caracas at Cdevereux3@bloomberg.net.

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net


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