Cemex is under new pressure to jack up its US$12.8bn ($16.3bn) hostile takeover bid for Rinker after the latest play by Holcim for Canada’s St Lawrence Cement Group.
Holcim, the world’s second-largest cement maker that controls 79 per cent of St Lawrence’s voting rights, said it would pay C$571m (US$620m) to mop up the remaining 21 per cent of St Lawrence it does not own. St Lawrence, a producer of cement and concrete aggregates, operates in Canada and the eastern seaboard of the US.
Credit Suisse analyst Rohan Gallagher said Holcim’s offer price of $C36.50 a share implied a price-earnings multiple of 18.3.
If the PE multiple is translated to Rinker, the equivalent value of Rinker would be $US15.31 or $19.28 a share, as opposed to Cemex’s $US13 a share offer price, which is a PE multiple of 15.3. Rinker’s independent expert’s valuation range of between $20.58 and $23.04 had "once again been validated by this transaction multiple", Mr Gallagher told clients.
The Holcim-St Lawrence deal is the second major consolidation of the US building materials market. Vulcan Materials paid $US4.6 billion for Florida Rock on a PE multiple of 21.3.
"Cemex’s bid needs to be lifted above and beyond $20 a share to achieve success," Mr Gallagher said. Rinker shares shot up almost 2 per cent or 37c to $19.05 yesterday. Credit Suisse also suggested that private equity players have been courted as alternative bidders for Rinker.
"The longer the process goes, the greater the likelihood private equity features in any Rinker alternative, in our view," Mr Gallagher said.
ABN AMRO analyst Simon Thackray said: "If you had asked me a few months ago, I would have said no because the cash flows of a construction materials company are too cyclical and uncertain for a private equity deal. Yet recently, one of Europe’s oldest private equity groups, PAI Partners, bought the roofing business from French group Lafarge in a E2.4 billion deal. This shows private equity players have an appetite for building materials companies.
"While I have not ruled out private equity interest in Rinker, it is more likely that a listed company in the construction materials market would be the predator as it could extract more synergies."