Cemex waits to cement its gains

Cemex waits to cement its gains
Published: 18 November 2004

Executives of Cemex, the world’s third-largest cement company, are confident they can reap rewards from September’s UK£3.2bn (Dollars 5.8bn)  acquisition of RMC of the UK, despite a negative market reaction (reports the Financial Times, London)

After the all-debt deal, ratings agency Standard & Poor’s placed Cemex on credit watch with negative implications, implying the Mexican company’s investment grade could be in danger. Its share price dipped 10 per cent after the deal - at a premium of more than 40 per cent - was announced, and
remains down more than 5 per cent. Cemex officials told the FT the purchase was made quickly, and the estimate of US$200m in savings did not include projections of higher prices or volumes. "We still haven’t done due diligence," said Hector Medina, vice-president  for finance, strategy and planning. "We applied our standards to what we  know about the company from public information. Detailed analysis will come after the purchase." But he remains confident that Cemex, whose vanguard IT, procurement and  logistics has made it a darling of the emerging markets, could better run RMC’s assets in the developed world. "Cemex’s administrative model is centralised and efficient and we think it’s better than a decentralised one. We have one product. It is no different across the world."

Cemex believes that in the US, where RMC and itself each derives a quarter  of their revenues, RMC’s ready-mix concrete divisions can now use cement made by Cemex’s US subsidiary. "RMC’s assets in the US are almost a perfect fit with those of Cemex," says Mr Medina. Rodrigo Trevino, chief financial officer, says Cemex could also profit more from the cement shortage in the US. Anti-dumping regulations mean that imports from Cemex’s plants in northern Mexico carry high tariffs.

Some analysts have criticised the deal for taking Cemex away from its core strength of marketing cement in developing economies - a high-margin business. For example, the ebitda margin of its Colombian business is almost 60 per cent, against 18.4 per cent in the US. However, the Cemex executives say RMC’s eastern European businesses could grow quickly, following the expansion of the EU, just as Spain experienced a boom in infrastructure and housing after joining the EU.Cemex is also not ruling out more acquisitions. Asked about China and India, Mr  Medina says they were "so large that they can’t be ignored. After this acquisition, we think we’ll be bigger and stronger and better able to generate cash."