Australia’s Rinker says offer from Cemex undervalues firm

Australia’s Rinker says offer from Cemex undervalues firm
30 October 2006

Australian building-materials company Rinker Group Ltd said an unsolicited US$11.7bn takeover bid from Mexico’s Cemex SA is highly conditional and undervalues the company, reports The Wall Street Journal.

In a statement, Rinker Chairman John Morschel said shareholders "should take no action in relation to Cemex’s offer at this time or any document from Cemex until they receive the directors’ formal recommendation." He said the recommendation will be issued "in ample time for shareholders to make an informed decision."

Juan Pablo San Agustin, Cemex’s strategic-planning executive, said the Mexican company’s offer "fully values what Rinker is worth."

Analysts and fund managers say they believe Cemex, the world’s largest seller of ready-mix concrete, has little chance of snaring control of Rinker and boosting its presence in the crucial U.S. building-materials market without improving its offer.

The all-cash offer prices Rinker at US$13 an Australian share, or about a 26 per cent premium over the average trading price in the past three months, Cemex said. That comes out to an equivalent local price of 17 Australian dollars. Cemex put the total value at US$12.8 billion, including Rinker’s debt.

Rinker closed Friday at A$14.70 after a late surge driven by a Wall Street Journal article on the unsolicited offer. Its American depositary receipts soared 33% Friday to US$71.10, compared with US$65 offered by Cemex for each ADR.

Fund managers "will fight it out; they will be looking for something closer to A$20 before they even consider selling," said Charlie Aitken, the head of trading at institutional broker Southern Cross Equities.

Shares of Rinker, which generates around 80 per cent of its sales in the U.S., have fallen as much as 43% from their late April record of A$21.44 amid a slowing US housing market.

The bid takes Cemex into uncharted territory, even considering the Mexican cement maker’s growing penchant for big deals. The offer is twice as big as Cemex’s prior biggest deal, last year’s US$5.8bn purchase of RMC of Britain. If successful, Cemex’s bid will rank as the largest merger-and-acquisition deal in Australian history, beating the A$14bn takeover of Optus by Singapore Telecommunications Ltd in 2001.

ICR Comment: Cemex is obviously trying to take advantage of the weakness being seen in the US and New South Wales housing markets. Whether the US authorities would allow Cemex to substantially increase its position in certain markets, notably Florida, is questionable.  Rinker owns a quarter of Cement Australia, the largest Australian cement producer, and the other two shareholders, Holcim and Hanson, are unlikely to welcome a Mexican competitor as a shareholder. Rinker is likely to emerge with a strong defence when it publishes its second quarter results, which will be weakened by the US housing downturn, shortly. A prolonged battle can be expected, with other prticipants possibly declaring their hands in the weeks ahead.  
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