Darex's deal for Midevensa: was Darex's purchase of Midevensa a vote of confidence for the Venezuelan coatings market?

Venezuela's paint and coatings industry received a vote of confidence in March when W.R. Grace's Darex unit purchased food and beverage coatings supplier Midland Dexter de Venezuela S.A., or Midevensa, to meld product lines destined for the central region of the hemisphere.

"It's a great opportunity to leverage our assets in Latin America," said Bob Wilson, director of marketing for Darex, based in Cambridge, MA.

While the value of the acquisition was not released, "Midevensa had sales last year in the more than a million-dollar range last year," said Wilson. Darex provided 12.3% of W.R. Grace's 2004 net sales of $2.259 billion, according to the company's most recent 10K filing with the SEC; regional sales are not broken out. W.R. Grace has filed for bankruptcy protection as a result of asbestos litigation.

Both Darex and Midevensa operate production plants within 20 minutes of one another near Valencia. Darex plans to fold the Midevensa products into the Darex portfolio, to supply a variety of countries in the Andean region, Central America and the Caribbean. Darex also operates production facilities in Sao Paulo and Santiago, Mexico, to help supply the Southern Cone and NAFTA regions, respectively.

VENEZUELA'S ECONOMY

Venezuela's economy has been on a role of late, buoyed by high oil prices. In 2004, the economy was up 13.2%, according to the UBS Securities economic analysis team headed by Michael Gavin, in Greenwich, CT. This year, the economy is predicted to slow to a moderate 3.4% growth rate, just below the regional Latin American average of 4.2%.

Still, the windfall income from oil has helped Venezuela pay off foreign debt and budget for massive internal spending campaigns, which should spur both architectural and industrial paint and coatings lines, as housing and state-owned industry expands. "We try to figure out growth on a customer-up basis, but following GDP is a reasonable estimate," Wilson said

"Darex has a commitment to be the preferred supplier for customized solutions for food and beverages, particularly in regions that require robust products to meet customized needs," said Wilson. "We provide high performance, solvent-based products for internal and external applications, often for difficult packs fatty-based meat products or other oil-based products, which are the most difficult within food packaging," he added.

While the political relationship between Venezuela and the U.S. has cooled substantially since President Hugo Chavez came into office in 1999, Venezuela recently has strengthened its ties to China and India, in particular, through new treaties for oil exploration and development. Chavez has threatened to cut off oil exports to the U.S., which amount to 1.5 million barrels per day, or about 15% of all U.S. oil imports, as his political rhetoric more closely echoes that of Cuba's Fidel Castro.

To help the Venezuelan economy continue export growth, Chavez recently devalued the Bolivar by more than 10% to 2,150 to the U.S. dollar, from a previous 1,920-to-one rate. The black market for U.S. dollars in Venezuela reportedly operates at about 2,700-to-one.

UBS analysts note that Venezuela's state oil company Petroleos de Venezuela S. A., or PDVSA, plans to spend about $2 billion for social programs this year, at the same time the company has enabled the country to pay down billions of dollars in foreign debt. Industrial production, which grew by more than 25% in 2004, is expected to increase by 6.8% this year, which should drive up the demand for paint and coatings.

CHARLES W. THURSTON

LATIN AMERICAN CORRESPONDENT

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