One giant leap for Mexican cement

Why should Cemex offer US$4.1 billion for RMC?  Indeed as much as US$5.8 billion if you add in RMC’s debt? True, Cemex is to borrow all that $5.8 billion—but that means more than doubling its own debt, quite a change of tone from a company which on September 12th told the markets it expected to cut its debt by $900m in the first nine months of 2004. Little wonder the ratings agencies and stockmarkets have been less than pleased (notes the Economist magazine in the UK).

Cemex’s own answer is that the deal will give it a solid cashflow in western Europe (where it now operates only in Spain), opportunities in eastern Europe, and some integration of the two companies’ operations in the United States, where both get about a quarter of their sales. And, as Cemex courteously does not say but analysts do, it could teach RMC a thing or several about managing cement.

The deeper answer is that, having more than trebled turnover and doubled profits from 1992 to a peak in 2001, Lorenzo Zambrano, Cemex’s boss since 1985, has seen two years of stagnant turnover and far lower profits. This year’s figures will be better, notably in the United States, but neither Mexico—still a third of the business—nor the rest of Latin America today offers much growth. Cemex is already active in Asia, but Europe lies almost untouched. And high-volume, low-value cement is not the sort of stuff in which you can expand just by exporting. If you have ambitions abroad, you set up there.

Ambition is not something which Mr Zambrano lacks. Cemex was originally a family business begun by his grandfather, but he has made it into multinational. Among many other purchases, in 1992 he bought Spain’s two biggest cement firms, and in 2000, for $2.8 billion, Houston-based Southdown Cement. And he has connections to match: a seat on the board of IBM, membership of advisory boards at Citigroup and DaimlerChrysler, and one of the six deputy chairmanships of the Trilateral Commission, the body of grandees which in anti-globalist demonology supposedly runs the planet.