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Savia: A Seed Empire Withers on the Vine


Alfonso Romo has for the past decade been one of Mexico's most dashing entrepreneurs. A superb horseman who cuts a wide swath in the social scene, Romo shrewdly invested in a number of lucrative assets from real estate to insurance to stock brokering to tobacco. He had a drive that caught the imagination of employees and foreign investors alike. It was easy to lend money to a man like Alfonso Romo.

Today, it's a chastened Romo who surveys the wreckage of his worldwide empire. The 50-year-old, hailed as a visionary seven years ago when he first invested in agricultural biotechnology and seed companies, now is struggling to pay creditors and remain afloat. An agreement restructuring Romo's corporate debt is expected with the banks any day. But Romo's problem remains: He grew too big, too fast. "I was overly confident," Romo said in an interview with BusinessWeek.

Romo's experience is rapidly turning into a cautionary tale for Mexican entrepreneurs tempted to venture overseas. Romo is selling off huge chunks of his conglomerate so he can honor some $1.3 billion in past-due debts and save his biotechnology dream from extinction. Shares in Savia, his New York-listed holding company, have fallen more than 70% since mid-April, to around $5.

What went wrong? Romo, an agricultural engineer by training, was so eager to be the world's biggest producer of vegetable and fruit seeds that he plowed profits from tobacco and insurance into nine seed companies from South Korea to Brazil in just four years.

ABSENTEE. But instead of assigning savvy managers to merge operations, Romo says he sent out scientists who shared his dream of using hybrid breeding and genetic manipulation to create disease-resistant, high-yielding seeds. Also, Romo checked out of day-to-day management to concentrate on training for Mexico's Olympic equestrian team.

In late 1999, Romo reasserted control, cutting jobs by 13% and operating costs by 12% over the past year. Still, last September, Romo's seed company, Seminis Inc., missed principal payments on a $315 million syndicated loan. Then his holding company Savia, which also owned insurer Seguros Comercial America, brokerage house Vector, and a packaging company, violated the covenants on some $220 million in swaps owed to J.P. Morgan Chase & Co. (JPM) and Bank of America (BAC), as well as $40 million owed to two Mexican banks. Savia lost $445 million last year on sales of $3.2 billion. Creditors demanded that Savia reduce its debt immediately by selling assets.

Romo is complying. Savia has sold the packaging division for $285 million and expects to raise some $1.2 billion from selling its 43.5% share of its insurance company to ING Group (ING). That will take care of most outstanding debt but leave Savia with little cash flow. Last year, a deal to sell the Vector brokerage to Charles Schwab & Co. (SCH) fell through, in part because the price tag was too high, market sources say.

To make matters worse, Pulsar Internacional, the Romo private holding company that controls Savia, is in default on part of $370 million in debt. "The situation is very grave, they're going to get scraped up, and there's still a strong chance they'll end up having to sell Seminis," to pay the Pulsar debt, says one creditor.

Romo insists that Seminis will soon return to profitability as the key player in the $2 billion worldwide vegetable seed market. Yet industry executives say Romo has his work cut out for him. "In theory, being the dominant vegetable seed company in the world is an exciting strategy, but in practice, it's difficult to pull off," says Roger H. Salquist, former CEO of Calgene Inc., a Davis (Calif.) agricultural sciences company. Seeds are very perishable, for example, and the risk of inventory writeoffs is always high.

Just as important, with little cash flow at his companies, Romo could see his debt woes resurface. Romo is unfazed. "The turnaround has begun. Two years from now, ask me how we're doing." That's what investors and creditors would love to know now. By Geri Smith in Mexico City


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