Hidden Dangers, Proceed With Caution

Jun 1, 2003

The failure of international investors to thoroughly vet potential partners can have costly consequences. It is more important than ever that corporate acquisitions in Latin America include exacting pre-deal research and analysis.

Investing in Latin America is not for the faint-hearted, even at the best of times and with the best of partners. The recent experience in Argentina of Dutch Royal Ahold is a perfect example of what not to do.

In 1998, Ahold created a 50-50 joint venture with Velox Retail Holdings, the banking and financial a company owned by Uruguay's Peirano family, to run a chain of supermarkets in the region. The Peiranos had built a small financial empire in Latin America controlling banks in Argentina, Uruguay and Paraguay. The joint venture with Ahold included Disco, a chain of Argentine grocery stores.

In August 2002, after Velox declared bankruptcy, Ahold was forced to take over its partner's stake in Disco, including assuming $492 million in debt. Four members of the Peirano family now are in a Uruguayan jail, accused by a local accountant of looting $400 million from Uruguay's Banco...

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“The crisis has been a setback for reserve diversification."

Jan Dehn, Ashmore Investment Management