The Business of Value Investing.pdf

208 The Business of Value Investing

In the fi rst half of 2008, Venezuela had a change of heart and

did indeed announce plans to nationalize SIDOR. Initially the mar-

ket reacted as expected, and shares of Ternium declined. However,

it didn ’ t take long for the market to realize that it had overdis-

counted the effect that nationalization would ultimately have on

the long - term profi tability of Ternium. Clearly, Ternium would be

better off without the nationalization process, but the analysis took

that aspect into consideration to account for such a scenario.

As of this writing, the nationalization outcome is still unde-

cided. Ternium and Chavez are currently in dispute as to how much

Ternium should receive for its stake in SIDOR. Ternium indicated

that $ 4 billion was a fair price for its SIDOR assets; Venezuela coun-

tered that $ 800 million was fair. At one point, it appeared that

both sides had agreed that $ 1.5 billion was a fair number, but that

is now in dispute again. How long this process will take before it is

ultimately resolved is anyone ’ s guess. With Venezuela ’ s oil - based

economy facing severe budget defi cits due to the decline in the

price of oil, all options are back on the table. In the meantime,

Ternium continues to maintain effi cient operations in Argentina

and Mexico. Even if the Venezuelan settlement isn ’ t what the com-

pany asked for — a very likely scenario — the company should not be

permanently impaired. In fact, with the Venezuelan cloud removed,

Ternium could experience a positive revaluation in the marketplace.

(Note: In May of 2009, Venezuela agreed to pay Ternium $ 1.97

billion for SIDOR. Ternium received $ 400 million immediately,

the remainder to be paid in two separate payment plans. When this

news was announced, Ternium shares rose by 45 percent that day.)

In the meantime, Ternium was clearly focusing its future growth

outside of Venezuela. In April 2007, Ternium had reached an agree-

ment to acquire Grupo IMSA for $ 1.7 billion. IMSA is a dominant

steel producer in Mexico with additional operations in the southern

and western United States. IMSA would add another 3 million tons

to Ternium ’ s annual fi nished production, bringing total capacity

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