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 Business News | April 2007 
Mexico's Cemex Ups Bid for Rinker
 Ben Wilson & Robin Emmott - Reuters
| | A Cemex employee works with sacks of cement mix in an undated publicity photo. Mexico's Cemex SA, the world's No. 3 cement maker, raised its bid for Australian rival Rinker Group Ltd. by 22 percent to $14.2 billion, winning the backing of the Rinker board. (Reuters) |
Mexico's Cemex SA , the world's No. 3 cement maker, raised its bid for Australian rival Rinker Group Ltd. by 22 percent to $14.2 billion, winning the backing of the Rinker board.
Cemex, which operates in more than 50 countries, said its revised takeover offer - the biggest ever by a Mexican company and the second-largest in Australian corporate history - was its final offer in the absence of a rival bid.
Shares in Rinker, which has been hit by a U.S. housing downturn, rose as much as 2.7 percent before closing up 1.8 percent at A$18.81 a share, still below the new bid price of about A$19.31 a share, based on the Cemex U.S. dollar-based bid of $15.85 a share and the current exchange rate .
Analysts said the new bid was at the low end of expectations but noted concerns about a housing downturn in the United States, where Rinker generates 85 percent of its earnings, and the company's failure to entice a rival bidder.
"The figure in Australian dollar terms was probably a little below what the market would have liked, but the reason is that the Australian dollar has strengthened quite substantially and also there has been further deterioration in the U.S. housing market," said Paul Xiradis at boutique fund Ausbil Dexia.
Institutional fund manager Perpetual, which holds about 10.5 percent of Rinker, declined to comment on the revised proposal. But another investor said the offer was not a "knockout bid."
"The fact the board are recommending it probably gives an indication of how tough it is in the U.S. housing market at the moment," said Rob Patterson, managing director of Argo Investments, which holds 3.2 million Rinker shares.
"It's a bit of a capitulation," he added.
Cemex's increased offer just crept within the range recommended by an independent expert, but was below the A$20 a share level some analysts have said Cemex would need to offer to win over Rinker's shareholders, citing other recent deals in the building materials sector.
In February, U.S. builder Vulcan Materials' paid 11 times forecast earnings before interest, tax, depreciation and amortization for Florida Rock Industries Inc.
Cemex's revised offer, which the company said was worth $15.3 billion, including debt, is priced at a multiple of about 10.5.
Cemex expects to generate $130 million in pretax annual cost synergies from the deal after three years, as well as gain a bigger slice of the U.S. market and a foothold in Australia.
"It offers an attractive premium to Rinker's shareholders while creating compelling value for Cemex shareholders," Cemex Chief Executive Lorenzo Zambrano said in a statement.
Rinker rejected the original $13 a share bid on October 27 and the company's shares have been trading well above that level in anticipation of a higher offer.
"We've said all along that basically Rinker should be valued on its long-term performance, but there is no doubt in the short term that the residential conditions are creating some difficulties in Florida and Phoenix," Rinker Chairman John Morschel told reporters.
Morschel said Rinker had looked at other alternatives, including deals with other industry players and private equity, as well as a corporate restructuring, but declined to comment on whether a formal rival offer had emerged.
"I think we've done the best we can with this bidder, and we've been unable to find any other alternative which approaches the same sort of risk-adjusted return to shareholders," he said.
Rinker said the new bid, a 45 percent premium over Rinker's share price at the time of the original October offer, was within an independent expert's $15.85-$17.74 share price valuation.
The deal has the approval of both companies, as well as Australian and U.S. regulators. The revised offer, which is conditional on winning 90 percent of Rinker, expires on May 18.
Additional reporting by Geraldine Chua in Sydney |
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