CEMEX's Acquisition Strategy - The Acquisition of Rinker Group
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Case Code: BSTR376 Case Length: 29 Pages Period: 2005-2010 Pub Date: 2010 Teaching Note: Not Available |
Price: Rs.500 Organization: CEMEX S.A.B de C.V Industry: Cement Countries: Mexico, Australia Themes: Mergers and Acquisitions |
Abstract Case Intro 1 Case Intro 2 Excerpts
"The lessons CEMEX has learned in the crisis means it has a lighter, more flexible, and dynamic operating base that will allow its eventual recovery...multiplying its profitability not only in the United States but in the majority of its subsidiaries."
- Carlos Hermosillo, Analyst, Vector Brokerage, in January 2010.
"CEMEX is in a much stronger financial position to regain our financial flexibility and, eventually, our investment-grade capital structure."
- Lorenzo Zambrano, Chief Executive Officer, CEMEX, in August 2009.
Introduction
On January 27, 2010, Mexico-based cement company CEMEX S.A.B de C.V (CEMEX) announced that its net sales for the fourth quarter ended December 31, 2009, had dropped by 17% to US$ 3.42 billion.
Moreover, the company reported that its annual net sales in fiscal 2009 had dropped by 28% to US$ 14.5 billion as compared to the net sales reported in fiscal 2008. In 2009, the company reported a fall of 35% in its earnings before interest, depreciation, taxes, and amortization (EBIDTA) to US$ 2.7 billion.
CEMEX had been facing problems like lower net sales and high debt since mid-2007 since its acquisition of Australia-based major cement company, the Rinker Group (Rinker).
As of early 2010, CEMEX was the largest cement company in the world in terms of production capacity. It was one of the companies based in an emerging nation like Mexico that had grown to become one of the top multinational companies in the global cement industry. Most of CEMEX's expansion in the domestic market as well as abroad came through acquisitions. Over the decades, it had developed strong expertise in successfully integrating acquired companies and reaping significant benefits.
The company also relied on technology to optimize its operational efficiency, which placed it among the most profitable cement companies in the world.
CEMEX, which was known for its post-merger integration skills, also managed its cash flows well and used the free cash flows to amortize and eventually pay off the debt it had incurred for an acquisition. However, in mid-2007, CEMEX completed its largest acquisition ever by paying US$ 14.2 billion for acquiring Rinker.
CEMEX financed the Rinker acquisition completely through a debt from a syndicate of banks. It estimated that Rinker's operations would result in strong cash flows and that, along with its own cash flows, it would be able to successfully service the huge debt burden...
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