Multinational companies are selling their Venezuelan operations at hefty discounts – or even giving them away – as they to seek to escape the Opec nation’s soaring inflation and chronic supply shortages.
Six firms, including General Mills and oil producer Harvest Natural Resources, have sold operations for as little as half their assessed value on the companies’ books, according to securities filings and interviews with a dozen people knowledgeable about the deals.
One company, US autoparts-maker Dana, last year sold its debt-laden Venezuela operations to a local buyer for no cash compensation.
Two multinational corporations – Clorox and Kimberly-Clark – chose instead to abandon their operations here.
Sell-offs by foreign companies could further isolate Venezuela’s economy, which is already reeling from low oil prices and an unravelling socialist system.
The fire-sale trend will likely accelerate as the crisis continues to cripple the local operations of more multinational firms, according to two private-sector sources familiar with similar deals in the works.
Firms acquiring such distressed operations, however, could reap huge gains if the country’s economy improves.
Corimon – a Caracas firm best known for production of paint – in May purchased the local operations of Bridgestone, the world’s largest tyre-maker.
Corimon will continue to produce tyres under the Firestone brand.
Carlos Gill, president of Corimon’s holding company, declined to disclose the sale terms but called the timing of the purchase “an opportune moment” for his company. Bridgestone declined to comment.
The sold-off operations, in some cases, were all but defunct before the deals because of chronic shortages of raw materials ranging from sugar to steel bars, as well as triple-digit inflation and difficulty exchanging a crashing local currency for dollars.
“A company that isn’t operating is a corpse, and the vultures start to circle it,” said Juan Pablo Olalquiaga, president of Venezuelan industry association Conindustria.
President Nicolas Maduro has blamed the country’s woes on an “economic war” launched by US business elites and encouraged by Washington politicians.
Maduro has said companies are intentionally slowing production or hoarding goods to destabilise his government.
The Venezuelan government’s information ministry did not respond to requests for comment.
For years, Venezuela operations generated major revenue for Fortune 500 companies because high oil prices allowed the government to sell subsidised dollars through its exchange control system, boosting companies’ local buying power.
But the 2014 oil price crash left Venezuela short of dollars because the country depends on oil for almost all its foreign exchange. More companies are deciding the country’s challenges now outweigh any benefits.
General Mills – owner of locally popular Diablitos Underwood devilled ham – reported in a filing earlier this year that it had taken a $38mn pre-tax loss on the sale of its local unit to an undisclosed third party.
Negotiations dragged on for nine months as the economy tanked, forcing General Mills to steadily lower the price, according to two sources with direct knowledge of the talks. General Mills did not disclose the sale price and declined to comment.
Insurer Liberty Mutual said in statement last year that it was selling its local affiliate, Seguros Caracas, to a local entrepreneur, Humberto Gil. One source familiar with the deal described the arrangement as a “gift.”
Gil did not respond to requests for comment on the sale, which still needs approval from Venezuela’s insurance regulator.
Liberty Mutual did not respond to requests for comment.
In 2014, Danish conglomerate The East Asiatic Company (EAC) sold its Venezuelan food business, Plumrose, to Liechtenstein-based Valartis Opportunities Fund.
Neither company responded to requests for comment.
US auto parts firm Dana said in a 2015 filing that it had sold its local affiliate “for no consideration” to a Venezuelan firm called Manufacturing and Logistics Solutions.
While auto sales soared during the oil-boom era of late socialist leader Hugo Chavez, they dropped 80% in 2014 as Venezuela’s economy ran into hard times.
Dana sold the company for no payment, though it did secure an agreement that Dana would continue to supply raw materials and that the buyer would assume debts.