Cemex Acquires Rinker: A Win on Both Sides

Includes: CX, RIN
by: Travis Johnson

Nice boost this morning from Cemex (NYSE:CX), which I have been watching on my "buy" list for a while now, with an eye to adding to my holdings - too bad I didn't buy a few more shares last week.

And this is truly an unusual one. Cemex has been trying to buy Rinker (RIN), the big Australian cement company (with, like Cemex, a preponderance of its business in the U.S.) for quite some time. It bid $13 a share a few months ago, and just yesterday had a $15.85 a share offer accepted by Rinker's board. This is a little bit less than Rinker owners were hoping for, since it places a slightly lower EBITDA multiple on Rinker than has been paid in recent acquisitions in this space (using the purchase of Florida Rock (FRK) by Vulcan Materials (NYSE:VMC) as a guide).
I think this is great for Cemex; if it goes through, it will take some time to assimilate the financials and bring the Cemex way of business to Rinker's operations, but Cemex management has proven that it can integrate large acquisitions and make them accretive in surprisingly short order for what is essentially a boring and competitive commodity business. And it has some nice businesses, including prefab concrete pipe, that should fit nicely into the Cemex portfolio.

And while it would have been nice to acquire Semen Gresik to get a stronger toehold in Southeast Asia as it had originally planned a few years back, a foothold in Australia is certainly a lower-risk and potentially promising second choice. Australia is, after all, a lot closer to some of those key growth areas in Asia, in addition to being a booming market in its own right, so perhaps a strong presence there will make Asian expansion more feasible for Cemex in the future.

So that's a nice international expansion kicker, but in truth this is primarily a U.S. deal. Rinker gets an even bigger percentage of sales from the U.S. than Cemex does and operates only in the U.S. and Australia, and it's pretty focused in some overheated markets like Florida and Arizona. This is probably why, with the housing downturn, the Rinker board was willing to accept a little bit less than analysts had predicted.

So look outside for a blue moon - a company just upped a bid to acquire a major rival, in the absence of any competing bids of substance, and its share price has already jumped up by 5% or so. That smells like a win for both Rinker and Cemex shareholders, and in the long run I think this will be a great deal for Cemex as it expands its dominant position in some of the world's key cement and concrete markets.

Disclosure: I own Cemex and am kicking myself for not owning more. I don't own any other companies mentioned.

CX vs. RIN 1-yr chart
cx rin chart

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