Autumn: Cemex Growing Season

Will Rinker Group wind up in the Cemex portfolio, find another suitor or merger partner, or maintain its status quo as a growth-driven operator with deep

Don Marsh, Editor

Will Rinker Group wind up in the Cemex portfolio, find another suitor or merger partner, or maintain its status quo as a growth-driven operator with deep brand equity and management prowess? As this issue went to press, Rinker board members and investors were weighing a $12.8 billion takeover bid Cemex S.A.B. de C.V. effected Oct. 27.

The largest to date in heavy building materials, the deal stands to shake up ready mixed, block and aggregate business in the Sunbelt markets and beyond, even more than the Cemex takeover of RMC Group in 2005. Landing Rinker would place Cemex ahead of Lafarge Group and CRH Plc as the world’s top heavy building materials operator, with annual sales around $23 billion. A combination of Cemex USA and Rinker Materials Corp. Û the top two U.S. ready mixed players Û would yield an operator with annual output of 42-47 million yd. and perhaps 150 million tons of aggregate. Rinker Materials has a host of regional ready mixed and aggregate properties with zero or limited overlap of existing Cemex businesses, plus a coast-to-coast manufactured-concrete platform accounting for 3.8 million tons of pipe and precast and an estimated 150 million block annually.

Cemex has a proven track record of disciplined acquisitions and successful integrations, says Cemex Chairman and CEO Lorenzo Zambrano. Combining Rinker with Cemex will generate value for shareholders of both companies. Rinker’s strong presence in key U.S. regions will significantly strengthen our ability to serve customers in the world’s largest and most dynamic building materials market [and extend] our global network into Australia.

The move for Rinker preceded by one business day a brief ceremony tinged with irony: From a platform above the New York Stock Exchange floor, Zambrano rang the Opening Bell for Oct. 30 trading (photo, page 6). Three years prior, Rinker CEO David Clarke had done such honors to mark his company’s NYSE arrival.

The Opening Bell gesture was part of Cemex’s 100th anniversary celebration. Judging by developments since 2000, the company has demonstrated the positive effects of aging and a propensity to initiate big transactions in the fall. In October 2000, it consummated a $2.8 billion tender offer for Southdown Inc., placing Cemex on the U.S. map and putting the European cement elite on notice that North America could see considerable play in the new decade. Recognized on Wall Street for solid management, Southdown had strong positions in Florida and California, both markets on the Cemex radar. But by 2000, Southdown stock was languishing, despite record earnings, as it faced costly challenges to growing its core cement business.

September 2004 brought the $5.8 billion takeover bid for RMC Group, a target that did not enjoy investor confidence comparable to Southdown, and one hamstrung by missteps in the U.K. and Europe. Cemex’s performance since integrating RMC suggest the suitor had cures for the ills of its target.

That suitor now eyes a second Wall Street favorite, Rinker Group, whose primary (> 80 percent) business and growth vehicle, Rinker Materials, is widely regarded among U.S. ready mixed, manufactured concrete, aggregates and cement operators. Rinker Chairman John Morschel declared the unsolicited bid opportunistic and materially undervalued the company. The company’s response suggested the board would formally recommend that shareholders reject the overture. Cemex noted that the all-cash deal valued Rinker at a 27 percent premium Û $65/share Û over its Oct. 27 opening share price. The stock peaked in May at $83, dropping to $46 in mid-September Û still more than double its October 2003 level.

Rinker shares hovered in the $71-$72 range in the days following the Cemex offer. This month will likely see whether the companies’ boards acknowledge a market-adjusted valuation, or if Rinker finds another suitor or financial strategy to proceed sans Cemex. As to the matter of opportunism, can a global heavy building materials company entering its second century afford to overlook prime, attainable targets in a merger-friendly regulatory environment?

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