Strategies & Market Trends : Cemex
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From: Sam Citron1/27/2006 7:55:56 AM
   of 81
Cemex Prowls for Deals In Both China and India
Mexican Cement Maker's Appetite Hasn't Slackened After Gobbling Up RMC
January 27, 2006; Page C4

MONTERREY, Mexico -- Cemex SA, the Mexican cement titan, has barely finished digesting its $5.8 billion acquisition of Britain's RMC Group, doubling its size and making Cemex the world's biggest ready-mix concrete maker.

But Chief Executive Lorenzo Zambrano already has his eyes on new prey: India and China.

"China and India are very interesting because they are large, fast-growing economies," Mr. Zambrano said in an interview in the company's Monterrey headquarters. Indeed, Mr. Zambrano has a full-time analyst researching the Chinese market for potential acquisitions -- on top of a regular market-intelligence team that flies in and out of the country as needed. "Right now, we have terabytes of information on China," he says.

Mr. Zambrano's interest in China and India show that Cemex's strategy of growing by acquisitions is unlikely to slow as it puts the finishing touches on the integration of RMC. Indeed, the RMC experience -- the biggest purchase ever by a Mexican firm -- is likely to encourage the world's third-largest cement company to do more. In fourth-quarter earnings set for release early today, Cemex is expected to announce that its revenue has doubled, while earnings before interest, tax, depreciation and amortization soared more than 60% over the year-ago period.

Mr. Zambrano, 61 years old, began buying companies defensively in the early 1990s to bulk up as the Mexican government dismantled the trade and investment barriers that had protected the cement and other industries for decades. The Stanford business school graduate soon went on offense after realizing he could make these acquisitions hugely profitable, creating new efficiencies by applying M.B.A. management techniques and the latest technology to the old-economy companies he bought.

Today, Cemex operates in more than 50 countries and is the single biggest supplier of cement in the U.S., where its sales may get an added boost since U.S. and Mexican authorities recently reached a deal to lower antidumping tariffs designed to limit U.S. cement imports from Mexico.

Despite its growing reach, Cemex has yet to make a foray into two of the fastest-growing world economies, where investment in infrastructure is creating huge cement demand. Indeed, Cemex's two larger rivals, France's LaFarge SA and the Swiss Holcim Ltd., have taken the plunge.

Investors haven't always been happy about Cemex's voracious appetite for acquisitions. The heavy debt load that comes with a buying spree was a sticking point for some when Cemex announced that it had agreed to buy RMC in 2004. But the company has appeared to convince skeptics that it is capable of wringing efficiencies out of huge targets such RMC. Cemex's New York Stock Exchange-traded shares gained about 70% last year.

Mr. Zambrano said he believed a Cemex program of paying down $724 million of debt by the third quarter of 2005 had alleviated many Wall Street concerns.

Mr. Zambrano said 2006 will be an important year for improving existing operations and consolidating the RMC acquisition. He also said he has no intention of rushing into an acquisition in either India or China, which he described as highly complex markets that would be expensive to enter, with their sheer size demanding an initial investment of at least $1 billion. That means an extensive process of due diligence before making a move, Mr. Zambrano said.

"The problem is, so far, everyone who has gone into China or India has had difficulty," he said. "You need to figure out how to do it first."
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