Famous Last Words: Argentine Meat

Famous Last Words

This is one in an occasional series of humorous or illustrative real world examples from my career.

“That was the purchasing department, I think that purchasing should be done in the open, don’t you?”
Horacio Michilini, Buenos Aires Argentina, 1993

I’d been at this for days, and I still couldn’t come up with an answer. I was the lead on the financial restructuring of the largest meat packer in Argentina (Argent Mega Meat or AMM), and new to the firm I was representing. My predecessor had recommended the private equity investment in AMM to fund an expansion through acquisition six months prior, and the results had been nothing short of disastrous.

The rationale for the AMM transaction was the First Gulf War. Historically, wars had been very good for the meat export business from Argentina. Because of endemic hoof-and-mouth disease, the country had not been able to export its wonderful fresh meat to European or North American markets, limiting its exports to much less desirable canned meat. The problem with the first Gulf War was its duration – it only lasted for a few days. A few days of war does not generate much demand for canned meat, and the acquisition was a bust.

After a few months of deteriorating business prospects we hired a turnaround manager, a former Brazilian General named Horacio Michilini. Horacio was just under six feet tall and carved out of fight. He was a careful planner, a great listener, a tireless worker, and fearless. As an example, he spent the first four weeks working day and night, producing a detailed business plan showing no need for additional capital or financial restructuring due to dramatically improved operating margins. This plan he did himself, and put it on a laptop computer in the hall so that “everyone can see what we are going to do with this place”. The command of detail, technical competency and transparency were compelling.

I understood why he was such a good leader, as I was drawn into his wake and easily fell into a role on his team. I was doing the financial restructuring and modeling.

No matter how I tried, I could not rationalize his projected margin improvement. We bought cattle every day, and every day lost 3% on production. I went over that operation from one end to the other looking for savings, and just could not find them. I finally started to plan for a debt restructuring, capital infusion or worse – a shutdown.

One grey, raining morning in May (fall in the Southern Hemisphere) I was sitting in the executive office suite agonizing over the financial model. The offices were classic late 19th century British, with heavy wood paneling and executive offices off a secretarial area. Adding to the misery was the omnipresent and overpowering odor associated with meat packing. We were losing money, the place stunk, and I was in misery.

Suddenly, down the outside corridor strode Horacio with a bunch of thugs with wheel barrows, sledge hammers, and shovels – clearly the implements of destruction. They walked by us to the end of the corridor where there was a wall of glass bricks, with a door in it. Immediately I heard sledges falling on glass, people hollering, screaming and soon the human exodus started.

Some just came out running, and others came out running with papers. Horacio had arranged to have police there, and those coming out with papers were promptly arrested. The mayhem was complete, the attack a complete surprise, and the enemy was fleeing in disarray. Horacio had brought his military tactics into the commercial environment, and his opponents did not stand a chance.

After about half an hour, the mess was cleaned up, the area behind the former glass brick wall was empty, and Horacio came strutting down the hall beaming. I stopped him to ask what the Hell was going on and he replied, “Wes, that was the purchasing department, I think that purchasing should be done in the open, don’t you?”

It was brilliant, and I had not seen any of it coming. There was a kickback scheme going on in purchasing, and it was accelerated with the acquisition. The people fleeing with papers had something to hide, and were arrested for it. Horacio got his margin improvement – and he got it that day. We went cash flow positive the next day, and never looked back.

We made money, and I got to go home. It was a victory all the way around. Oh, and I learned a lot about turnarounds, particularly in Latin America.

Wes Chapman
Written by Wes Chapman