|What timing by our Mexican friends, to launch an unsolicited bid just as the US GDP seems to be, how shall I put this, "falling off a cliff"!^_^!|
BTW, Julius, thanks for the Bloomberg post at Trends re auto production and GDP report. Would love to have your input over at my macroeconomics thread at Subject 55635
Cemex targets bigger U.S. stake with Rinker tie-up
Rinker says $12.8B offer is a surprise; deal sparks building materials rally
By Laura Mandaro, MarketWatch
Last Update: 4:56 PM ET Oct 27, 2006
SAN FRANCISCO (MarketWatch) -- Mexican cement giant Cemex said Friday it planned to make a $12.8 billion offer to buy Rinker Group Ltd., an Australian firm that derives the bulk of its profits from selling construction materials in the United States, even as the domestic housing market continues its recent slump. But first Cemex (CX must convince Rinker's board to turn a surprise, unsolicited offer into a friendly deal.
"We had no knowledge of the bid prior to its being announced, other than a short phone call," said Rinker spokeswoman Debra Stirling. "Obviously our board has not yet had time to consider its response."
Cemex, based in Monterrey, Mexico, early Friday unveiled plans to offer $13, or A$17, a share in cash for Rinker.
The offer represents a 27% premium to Rinker's prior-day closing price on the Australian Stock Exchange and values Rinker's American depositary shares at $65 each.
Rinker's U.S. listed shares jumped as high as 35% before closing up 33.2% to $71.10. Cemex's shares ended down 4.5% at $30.55.
Cemex said the acquisition will solidify its position in the U.S., where Rinker makes 80% of its profits and focuses on fast-growing markets in the Southeast and the Southwest.
The deal, valued at $12.8 billion including Rinker's debt, would also allow Cemex to enter Australia and give it a toehold in China.
"Combining Cemex and Rinker in the U.S. will improve the capacity of both to serve our customers," said Cemex Chief Executive Lorenzo Zambrano in a conference call with investors. "We will triple our aggregate business and double the size of our ready-mix business."
Aggregates refer to the combination of crushed rock, sand and gravel that are used to make products like asphalt and concrete. Concrete is often sold in its ready-mixed firm.
Despite the surprise tactics of their offer, Cemex executives stressed that they would like to turn the bid into a friendly one and "are ready to meet Rinker's board or management at any time."
If they're successful, the combined company would have $23.2 billion in revenue and 67,000 employees in more than 50 countries. With most of Rinker's profits coming from its U.S. sales, Zambrano said the acquisition will reduce the volatility of Cemex's cash flows and its cost of capital.
But in the near-term, the deal would also give Cemex more exposure to the U.S. housing market, which has entered a sharp downturn in once-booming areas like Phoenix and Florida.
Currently, the U.S. housing market makes up about 7% to 8% of Cemex's sales; that portion would more than double if the deal for Rinker goes through, estimates BB&T Capital Markets analyst John Kasprzak.
On Wednesday, the National Association of Realtors said sales of U.S. existing homes dropped for the sixth month in a row in September, while median sales prices fell for the second straight month. See Economic Report.
"Of course I'm worried about the U.S. housing slowdown," and the pull-back in the Florida housing market, Zambrano said, adding "but I'm confident that those are manageable risks."
Rinker's U.S. subsidiary, the West Palm Beach, Fla.-based Rinker Materials Corp., gets 40% of its $3 billion in annual revenue from Florida. It also has principal operations in Arizona.
The news spurred higher trades in other building-materials' firms shares, which were battered over the summer as the downturn in the U.S. housing market became more evident.
Florida Rock Industries, Inc. (FRK) gained 7.5% to $43.09. Texas Industries, Inc. (TXI Texas Industries, Inc.
rose 1.3% to $62.03. And Vulcan Materials, Inc. (VMC Vulcan Materials Company VMC ) gained as much as 3.2% before closing 22 cents higher to $80.46.
The Cemex deal has raised the possibility that other large, international buyers are looking to fold in smaller companies at a discount.
"Rinker was closer to its 52-week low (before the announcement), primarily because of concerns about U.S. housing market," said BB&T's Kasprzak. "That's when a strategic buyer is sharpening its pencils."
Cross-border mergers have been a long-running trend in the building materials sector. Driving activity, companies have found that it's often easier to buy new factories than build ones. Plus, non-U.S. companies have sought domestic targets to get a stake in the U.S. housing and construction market.
"A lot of it has been done just because of the growth and attractiveness of the U.S. market -- it's been very dynamic," said Kasprzak.
Texas Industries has also recently been the target of foreign interest. Last week, Nassef Sawiris -- the head of Egypt's largest cement company - disclosed in a securities filing that his investment company had bought securities that could give it a 9.1% share of Texas Industries.
Cost savings, more cash
The deal should add to Cemex's free cash flow and cash earnings per share immediately, the company said. Cemex expects the transaction to achieve pretax annual cost synergies of $130 million by the third year following its completion.
Cemex said it's making the offer in U.S. dollars, reflecting the location of most of Rinker's assets and its reporting currency. The transaction is subject to regulatory approvals and the acquisition of more than 90% of Rinker's shares.
Citigroup is acting as lead financial adviser to Cemex, with J.P. Morgan co-advising.