Rinker Group Ltd investors said Friday they are holding back from taking up Cemex’s US$14.25 billion takeover offer because they believe the bid undervalues Rinker with prospects of a recovery in the U.S housing market later in the year.
Two weeks before the US$15.85 (A$19.36) cash a share offer closes, the Mexican company said it has only garnered 1.7% of the stock, a fraction of its 90% minimum acceptance condition, despite Rinker board’s recommendation.
Investors said they were delaying tendering their shares amid optimism the Sydney-based company may be able to ride out the housing slump in the U.S., where it makes 85% of its earnings, or because they are waiting for a signal from Rinker’s largest investor, who could scuttle the bid.
"We haven’t made up our minds. It’s a big decision to make," said Steven Marsh, who holds Rinker stock among the equities he manages at Trust Co. Funds Management in Sydney.
"We’re waiting for more information out of the U.S," he said. "The latest results from Rinker’s competitors are showing things may be starting to bottom out."
Rinker stock closed Friday up 1.1% at A$18.89, a 36% premium to its share price before Cemex made its original offer last October but well below the revised offer price.
On April 11 Cemex gained the approval of Rinker’s board after raising its offer 22% from its previous offer of US$13 in a bid to propel Cemex from the world’s third-largest cement producer to the largest.
Buying Rinker will allow Cemex to expand in the fast-growing U.S. Sunbelt states of Nevada, Arizona and Florida and gain businesses in Australia and China.
The deal, which values Rinker at A$18.7 billion including debt, would be the the largest in Australian history, surpassing Singapore Telecommunications Ltd.’s A$17 billion offer for Cable & Wireless Optus Pty in 2001.
The deal is also the latest in a recent series of acquisitions in Australia and could be trumped by a proposed A$19.7 billion takeover of Coles Group Ltd., the nation’s second-largest retailer.
Qantas Airways Ltd., Australia’s largest carrier, is also subject to a A$11 billion private equity offer, which closes Friday, while Orica Ltd., the world’s largest explosives maker, has knocked back a A$10 billion private equity tilt.
Florida Rock and Vulcan Materials quarterly results showed "a positive outlook for a recovery in U.S. housing markets" that may strengthen hope for investors, who don’t want the bid to succeed, said Credit Suisse in a client note Wednesday.
"Whilst the board may have raised the white flag (citing bankers’ advice, risk-adjusted returns), we do not believe the game is over," Credit Suisse said.
Still, Rinker chief executive David Clarke said last week, when the company posted better-than-expected earnings of US$782 million for the year that ended on March 31, up 5.7% from a year earlier, "uncertainty" in the U.S. meant earnings may fall as much as 10% if the downturn persisted.
"It will be a close run affair and Cemex has its work cut out to convince enough shareholders to get across the line," Richard Wallace, a fund manager at Wallace Funds Management in Sydney.
"It won’t get to 90% initially and we’ll be sitting and waiting until the end," said Wallace, who holds the stock.
"Cemex has been smart in trying the buy Rinker at the bottom of the cycle," said Trust’s Marsh.
"You have to sit back and decide whether you are sell the stock now or take a longer term view and ride through the cycle," he said.
All eyes are on Sydney-based fund manager Perpetual, Rinker’s largest shareholder with a 10.5% stake, whose decision could scuttle the deal.
Perpetual is declining comment on whether it will accept the offer after rejecting the earlier bid as too low.
Adelaide’s Argo Investments, which holds about 3.2 million shares, also hasn’t decided whether to endorse the bid and Melbourne’s Australian Foundation Investment Co., which owns 6.9 million shares, has rejected it.
"We’re undecided," said an Asia-based hedge fund manager, who declined to be named.
"Everybody’s waiting to see what Perpetual will do, as well as we’re still waiting for some additional data on the U.S. housing market, which may show the slump dragging out longer," he said.
Cemex’ offer closes on May 18.