O-I plans to monitor Venezuela takeover

10/27/2010

Owens-Illinois Inc. said Tuesday it is monitoring the status of its two bottle manufacturing plants in Venezuela after President Hugo Chavez announced plans for a state takeover of the facilities.

A spokesman for the Perrysburg-based glassmaker said normal operations are continuing for now at the plants in northwest Venezuela.

The plant in Los Guayos, about 100 miles west of Caracas, has about 700 employees, and the one in Valera, about 300 miles west of the Venezuelan capital, has 350 workers.

Company spokesman Stephanie Johnston said Venezuelan soldiers have been stationed around the plants but have not entered them. She said company officials have not spoken directly with Venezuelan officials as of Tuesday.

The two facilities, which were opened more than 50 years ago, make food jars and beverage bottles.

O-I's Venezuelan operations represent a small percentage of the company's global operating profits in glassmaking.

The company reported $7.1 billion in global revenue for 2009 and $169 million in net earnings.

Mr. Chavez unveiled his plans to expropriate the bottle plants in a televised state address late Monday.

The leftist leader criticized the Perrysburg company's practices in his country, saying it had been "taking away the money of Venezuelans" and exploiting local workers.

Al Stroucken, O-I's chairman and chief executive officer, said in a statement that the company was "surprised" to learn of Mr. Chavez's decision.

"We're prepared to work with government officials to better understand the situation," the statement said. "In the meantime, we're focused on continuing safe operations in the interests of our people and our customers."

The U.S. State Department declined to answer questions about O-I's situation.

But according to news reports, State Department spokesman Charles Luoma-Overstreet said: "We would expect Venezuela to provide prompt, adequate, and effective compensation for any expropriation of the investments of Owens-Illinois in accordance with international law."

O-I is the world's largest glass container manufacturer with operations in 22 countries. Its Owens-Illinois de Venezuela CA subsidiary counts among its clients Nestle, PepsiCo Inc., and Empresas Polar, which produces the local beer Polar.

It was unclear how the government would handle compensation for O-I's assets in Venezuela nor how the takeover could affect supply agreements with the company's clients.

Venezuela's announcement comes just before O-I's third-quarter earnings report, which is to be released after the stock market closes Wednesday.

Analysts said the Venezuelan takeover is not likely to have a significant impact on the company's earnings or its South American strategy.

Ghansham Panjabi, senior research analyst with Robert W. Baird & Co. Inc., said that although O-I's Venezuela operations used to be profitable, they took a hit when Mr. Chavez decided in January to cut the value of Venezuela's currency by half.

O-I bought Brazil's third-largest glassmaker, Companhia Industrial de Vidros, for $603 million in cash last month. Mr. Panjabi said that could be used to help minimize any disruptions from the Venezuelan takeover.

Christopher Manuel, director of KeyBanc Capital Markets in Cleveland, said Venezuelan operations are "ramping down." He said the business was hurt by the Venezuelan currency devaluation.

KeyBanc estimates that O-I has about $100 million in assets and cash in Venezuela. Although the firm believes O-I's two plants could fetch between $245 million and $630 million on the open market, Mr. Manuel expects the Venezuelan government will pay less than market value.

If that happens, he said O-I could seek arbitration with Venezuela through the International Centre for Settlement of Investment Disputes.

The Washington-based institution, which is part of the World Bank Group, is working to negotiate several disputes between Venezuela and various companies whose assets it has seized, including oil producers ConocoPhillips Co. and ExxonMobil Corp.

However, Mr. Manuel said such cases usually take years to be resolved.

O-I also could mitigate its losses from the Venezuelan takeover, he said, if it uses proceeds from the forced sale to repurchase stock or make other investments.

"There is some compensation that comes with this loss of earnings," he said.

This is O-I's second notable setback in Venezuela.

William Niehous, the company's former vice president in charge of Venezuelan operations, was kidnapped in 1976 and was released by his captors three years later. The retired executive left O-I in 1988 and now lives in Ottawa Hills.

Mr. Niehous, 79, said Tuesday that he hopes O-I will be able to find a solution to Mr. Chavez's planned actions.

"If Venezuela takes over, I would be very disappointed," he said.

Information from the Associated Press was used in this report.

Contact Sheena Harrison at:

sharrison@theblade.com

or 419-724-6103.