Mexican cement giant CEMEX S.A.B. de C.V., after five months of wrangling and mudslinging, has reached a tentative acquisition agreement with rival Sydney-based Rinker Group Ltd. for $15.3 billion. The hostile cash tender takeover creates one of the world’s largest construction material suppliers, with $23.2-billion in annual revenue and more than 67,000 employees in 50 countries. It marks the largest cash takeover bid in Australian history, and CEMEX’s most ambitious acquisition to date. Zurich-based UBS AG is advising Rinker, while Cemex is being advised by Citigroup Inc. and JPMorgan Chase & Co., New York.
On April 10, Rinker said that it would recommend accepting Monterrey-based CEMEX 's latest offer of $15.85-per-share, giving it a 90% ownership stake. The offer was due to expire Mar. 30, but was extended until April 27. The bid marks a 22% premium over the CEMEX’s original offer of $13-a-share made on Oct. 26, which Rinker's board rejected.
Rinker had explored several alternatives to fend-off the takeover, including partnering with other industry companies and private equity investors, corporate restructuring and a re-domicile to the U.S. But, in the end, CEMEX’s bid proved too profitable, representing a 45% premium over Rinker’s last traded share price in October.
"This recommendation has been made after careful consideration of available alternatives, and was not taken lightly,” said Rinker Chairman John Morschel in a statement. “The higher CEMEX cash offer represents the best risk-adjusted return for shareholders.”
The Dept. of Justice, however, is requiring CEMEX to divest 39 ready mix concrete, concrete block, and aggregate facilities in Tampa, St. Petersburg, Fort Walton Beach, Panama City, Pensacola, Jacksonville, Orlando, Fort Myers and Naples, Fla.; and Flagstaff and Tucson, Ariz., as part of the deal. The assets are valued between $300 million and $500 million, according to Goldman Sachs's JBWere. Rinker and Cemex are the only two companies capable of supplying ready mix concrete for big projects in Flagstaff; and, in other cities, there are only one or two other firms capable of serving large construction projects. The DOJ said the acquisition would result in increased prices for concrete block for customers in the Tampa/St. Petersburg and Fort Myers/Naples area, where CEMEX and Rinker account for more than 60% of concrete block sales.
“The department's action will ensure that these customers will continue to receive the benefits of competition," said Thomas O. Barnett, assistant attorney general for the Dept. of Justice Antitrust Division, in a statement.
CEMEX (NYSE: CX) is already the largest US supplier of ready mix concrete and cement, and the seventh largest aggregate supplier. The company had $18.2 billion in global sales in 2006, of which 25% came from its Houston-based U.S. operations, CEMEX Inc. Rinker (RIN.AX, NYSE: RIN), meanwhile, is the second largest U.S. supplier of ready mix concrete, and the fifth largest aggregate supplier. The company last year reported about $4 billion in sales, of which 80% came from its West Palm Beach, Fla.-based U.S. subsidiary, Rinker Materials Corp.
“The combination of CEMEX and Rinker will create value for shareholders as well as customers, particularly in growth regions in the Untied States,” said Lorenzo H. Zambrano, CEMEX CEO and chairman, in a statement. “We intend to regain our financial flexibility as soon as possible and return to our steady state capital structure within two years.”