Superman And The Fall Of Nueva Rumasa

Few are the occasions in Mallorca when it might seem pertinent to drag out the fact that I have an MBA qualification. Were it really necessary, there is the certificate to prove the fact - it's around somewhere, buried in a box. There is also, probably in a different box, a bound copy of my dissertation. On completion and entry into a word processor, its total number of words came to 33,333. What were the chances of that?

The dissertation was on mergers and acquisitions. It was full of the junk associated with the subject - corporate cultures, the dreaded s-word of "synergy", legacy IT systems, blah, blah, blah - and it had a specific section about conglomerates. These spawned their own management-speak jargon, for example "core competencies". The theory and also the practice warned against conglomerates of disparate businesses, because of the undermining of core competencies. Put very basically, if you are a bar, you don't go and acquire a clothes shop as well; your core competencies relate to running the bar, not the shop.

Mallorca and Spain have businesses that you are unlikely to have ever heard of. Their individual businesses you may well be aware of, but sitting on top of them are mysterious conglomerates with all manner of operations, some related, some not. One that did have largely related businesses was Marsans. Its colossal debts forced its sale last year, but some of the individual businesses, such as the Hotetur hotel chain, have continued to face uncertainty. Another one with huge debts which has a far more diverse portfolio is Nueva Rumasa.

Nueva Rumasa is an extraordinary company. As the "nueva" suggests, there was a previous Rumasa. It was expropriated by the government in 1983 because of the huge debts it then had. At the time, it had some 700 businesses under its control, anything from banks to chemicals. It was Spain's biggest concern, and it was the creation of one man, the same head of Nueva Rumasa - José María Ruiz Mateos (the "Ruma" of the company's name come from his two surnames). Rumasa was, at one point, given a mention in the dissertation. It was eventually left out, but had it stayed in, the satisfaction of the 33,333 words would never have come to pass.

The company is extraordinary, and so is Ruiz Mateos. He has courted publicity and controversy. On one occasion, in a protest against a judicial hearing against him, he dressed as Superman. He has been in prison more than one time. When he was allowed to re-enter the world of business, he formed Nueva Rumasa. At least ten of its hundred-plus businesses now find themselves in difficulty. They include the Rayo Vallecano football club, the Quesería Menorquina, of which the former Kraft cheese plant in Menorca is a part, and Hotasa, the chain to which, among others, three hotels in Can Picafort - the Clumba Mar, Santa Fe and Sarah - belong.

The ten businesses alone are responsible for some 700 million euros of debt. With lawsuits being threatened and with properties belonging to Ruiz Mateos's family having been embargoed by Social Security because of apparent non-payment of contributions, Nueva Rumasa is seeking bankruptcy protection and a way of arriving at agreements with creditors and calming investor nerves. These may be investors who were warned by the Spanish securities and investments board to get advice before putting money into Nueva Rumasa companies.

There can be any number of reasons why Nueva Rumasa has got into difficulties, but its is a story that is, in some respects, not unfamiliar. Diverse businesses do not always make for good corporate bed-fellows: anything but. Conglomerates are typically penalised by the markets via the so-called "conglomerate discount", i.e. traders consider them likely to yield lower returns. This comes back to the core competencies argument.

Then there is the impulse behind the diversification and the acquisition of all sorts of businesses. Sometimes it has a clear business purpose. Hanson Trust was once a good example of this before the markets came no longer to appreciate both it and the practice of conglomerates. Virgin is an example of a conglomerate that has prevailed, thanks in no small part to the persona of Richard Branson but as importantly to a system of branding that sees its components come under the Virgin name.

The role of the key man and founder cannot be underestimated. Branson and Lord Hanson were the "faces" of their companies at a time when business started to become the new rock and roll. This can be a strength but also a weakness. And the weakness can be a need for power and the sheer expression of ego that are the impulses behind acquisition and conglomerates. Take Robert Maxwell. When he was sniffing around Manchester United, I asked a contact at the company which had been the basis for Maxwell's business empire, Pergamon Press, why on earth Maxwell would want the club. The answer was hugely instructive: "he wants people to love him".

There are some similarities between Maxwell and Ruiz Mateos. Both controversial, both publicity-conscious, both political animals (Maxwell was an MP, Ruiz Mateos an MEP with his own party), both at some stage embroiled in investigations (Maxwell was once deemed someone not to be "relied on to exercise proper stewardship of a publicly quoted company"). Maxwell fell from grace twice. So now has Ruiz Mateos, but in which direction his particular story goes we will wait to find out. And for anyone embarking on a dissertation, there are at least 33,333 words to be written. Many more probably. It's a whole book.


Any comments to andrew@thealcudiaguide.com please.