The Cemex-Rinker Takeover Continues


Time for another look at the Cemex takeover bid for Rinker (ASX: RIN) due to comments in the US Federal Reserve’s statement overnight.  As you may have noticed, the Fed decided to keep US interest rates the same at 5.25%, making it six months since they have moved it.  In the statement  it said, “Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market.”

Apparently, the market was hopeful of a change in the Fed’s language that may indicate a move towards loosening monetary policy in the next few months.  However that doesn’t look likely to happen.  As the Associated Press reported, “Investors fear that an increase could cause problems if it comes as the economy — in particular the interest rate-dependent housing sector — is still slowing.”

Jack Caffrey, equities strategist at JP Morgan Private Bank told AP “They’re trying to talk tough in the hopes of not having to act tougher.”

Is that good news or bad news for Cemex?  Instinctively, one would suggest it is good news for them in their effort to keep the share price of Rinker lower.  Arguments by Rinker that the Cemex bid is undervalued will be less convincing if shareholders see a continued and sustainable downturn in US building activity.

If shareholders start to take the short-term view that Rinker revenues and profits are likely to fall then they may be more inclined to take the current price of around $18 a share rather than wait – perhaps in vain – for Cemex to increase their bid or for a competing bid to emerge.  The current price is over $1.50 above Cemex’s bid.

Reuters reported that “In response to Rinker’s formal recommendation to shareholders to reject the offer, Cemex said its offer was ‘full and fair’, but it did not rule out raising the bid,” it went on to say, “Medina [Cemex executive] said that Cemex was willing to walk away from the bid, but did not say much more.”

On the other hand, for those that would prefer to take the more bullish side of the argument, they could reasonably argue that perhaps the US housing market has hit, or is close to hitting rock bottom and that Cemex should pay-up for future earnings growth in lieu of getting Rinker at a ‘discount.’

Then there is the argument from those such as Terry McCrann, who in the News Limited press on 30th November said, “The guys at Cemex should remember why they are bidding now, opportunistically seizing a temporary downturn in both the Florida market and the Rinker share price.”  If it is a temporary downturn that is.  We can only assume that McCrann has utilised his crystal ball to be so confident that it is short term dip.

In fact, so convinced is McCrann that Rinker is a great deal for Cemex that he wrote, “That is to say, it is not just a good fit, nor even a perfect fit — and it is that — but something even more telling : it is a must fit.”  This is because “Set against Rinker continuing as an independent player in the high-growth US states of Florida, Arizona, and Nevada.  Or potentially worse — joining ‘somebody else.'”

It is always tempting to lay on the bravado when talking up the prospects of a foreign takeover of a domestic company.  It is difficult to see that Rinker is a “must fit” for Cemex, so we shouldn’t be too surprised if the Mexicans string this one out to the end of January meanwhile lining up other acquisitions elsewhere.  Then, the board need to deliver on their statements.

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.

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Bob Amery
Bob Amery
9 years 10 months ago
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