Stalled Cemex bid stirs Rinker pot

Stalled Cemex bid stirs Rinker pot
Published: 19 March 2007

Cemex is not expected to raise its US$12bn ($15.3bn) bid for Australian rival Rinker Group when the offer expires at the end of the month, even if that means walking away empty-handed.  
 
But both companies could enjoy an enhanced reputation if the four-month takeover battle fails to provide a deal, with investors applauding Cemex for not overpaying for the purchase, and Rinker being approached by other suitors, analysts say.  
 
"Judging by the signals Cemex has been sending, it won’t increase its $US13 a share offer. The company feels the premium it offered in October was enough," said Carlos Hermosillo, an analyst at the Mexico City-based Vector brokerage. 
 
Cemex, which is based in Mexico’s northern city of Monterrey and operates in more than 50 countries, said its share offer, equivalent to $US16.51 a share at the time of its October 27 offer, represented a 27 per cent premium over Rinker’s closing price the day it made the bid.  
 
Stock in Rinker, whose board has rejected the offer, is now at $18.70 a share on hopes of a better bid by Cemex.  
 
Australian-based analysts say Cemex would need to offer above $21 a share to be successful in its takeover attempt, which is the biggest ever by a Mexican company. 
 
They cite the purchase by US builder Vulcan Materials of Florida Rock Industries in February as raising the bar for Cemex.  
 
Vulcan paid 11 times forecast earnings before interest, tax, depreciation and amortisation (EBITDA) for Florida Rock, compared with a multiple of around nine offered by Cemex for Rinker.  
 
"It is pay up or shut up (for Cemex)," said Simon Thackray at ABN Amro in Sydney.  
 
"If the right price is offered, there should be no resistance whatsoever," he added.  
 
Analysts agree Rinker would be a great catch for Cemex, which expects $US130 million in pre-tax annual cost synergies from the deal after three years as well as a foothold in Australia and a bigger slice of the US market.  
 
The deal would create the world’s biggest ready-made concrete and aggregates firm, although it would still lag Lafarge and Holcim in cement.  
 
"Yes, it would be very good for Cemex, but the company’s reputation would also be enhanced if it shows it won’t be pushed into paying more than what it considers is appropriate," said Carlos Gonzalez at Mexico’s Ixe bank.  
 
Cemex has won approval from the Australian regulator, the Australian Securities and Investments Commission, for the takeover but is awaiting permission from the US Department of Justice because of Rinker’s extensive North American operations.  
 
Cemex has twice extended its bid -- now until March 30 -- to obtain the regulatory requirements.  
 
Rinker, meanwhile, appears to be benefiting from Cemex’s interest, raising its profile and attracting other parties.  
 
A source close to Rinker said the company was in takeover discussions with rival companies such as Vulcan and Lafarge, as well as private equity firms.