Cemex SA is lining up an acquisition of Australia’s Rinker Group Ltd. amid a flurry of deal discussions in the sector, say people familiar with the matter, report The Wall Street Journal. Rinker has a market capitalisation of nearly $10bn.
As in all big merger situations, deals can get close to the finish line and fall apart. Or they can change quickly, given that companies in the sector have been discussing a bevy of possible merger permutations in recent months.
A Cemex spokesman declined to comment. A Rinker spokeswoman declined to comment.
The merger chatter has increased as business conditions have begun to change for makers of concrete, cement, aggregates and other construction materials at the center of the real-estate and housing market in the U.S. and beyond.
American depositary receipts of Rinker, for instance, were trading above $80 as recently as May, and have since fallen to $53.40, in New York Stock Exchange trading. While based in Australia, the company derives 80% of its earnings from the U.S. market, and its materials are used heavily in states such as Arizona and Florida, where building booms are starting to taper.
Lately, the slackening U.S. housing market has damped results for Cemex in its biggest market. In the third quarter, net sales in the U.S. fell by 9%, mainly because of weaker demand from the residential housing market, the company’s planning chief and No. 2 executive, Hector Medina, told analysts on a conference call yesterday. Still, the company’s shares are up significantly during the past 12 months, trading yesterday at $32. The company has a market capitalization of more than $23 billion.
With another potential acquisition in the works, Cemex is continuing a process of diversification from its core cement business.
A deal is likely to reawaken shareholder concerns about Cemex’s thirst for acquisitions. The purchases have forced Cemex to take on heavy debt loads in the past, and many investors soured on the stock immediately after the company announced the RMC purchase. To further quiet shareholder concerns, Cemex has also committed to reducing chunks of its debt. (Extracted from The Wall Street)