Loma Negra’s price too high for Cemex?

Loma Negra’s price too high for Cemex?
Published: 16 August 2004

Cemex is never scared to shell out cash for acquisitions but a $1 billion price ticket for Argentina’s biggest cement maker Loma Negra is seen as too high.  Analysts said on Thursday that Cemex would be interested in buying Loma Negra, which accounts for 48 percent of the Argentine market, but at a lower price to meet its strict investment and acquisition criteria. The Wall Street Journal reported on Thursday that Loma Negra is putting itself up for sale in a possible $1 billion deal and named Cemex as one of two global cement makers that could be interested in the company.

 "The valuation appears to be a little high," said Vector analyst Carlos Hermosillo. "Definitely Cemex could be interested in the purchase but it is not going to go desperately to clinch it." Cemex declined to comment directly about Loma Negra. The Argentine company, closely held by the wife of the founder, said it had no information on the report of its sale.

Cemex, which operates in more than 30 nations, stressed recently it is concentrating on paying down debt in the absence of "attractively priced" acquisition opportunities. After buying US-based Southdown in 2000 for $2.8 billion, it became the biggest cement player in the United States. Cemex has not made a major acquisition in the last three years.

Cemex has strict investment and acquisition guidelines. Targets have to meet future cost reduction and profitability expansion rates to be attractive. The criteria also limits Cemex from paying over the odds for acquisitions target so that financial margins are not weakened on Cemex’s balance sheet. Analysts reckon Cemex’s average acquisition price is below $140/metric tonne, Cemex spokesman Gerardo de la Torre said when the company had news to report it would release it. "We are always analyzing investment opportunities around the world," he said.

Cemex ended the second quarter with net debt at just under $5 billion, down $2 billion from the height of its spending spree. It expects free cash flow, which could be used for acquisitions, to hit $1.35 billion this year.