It was Cemex that blinked first. After months of sparring, Cemex ran out of puff and conceded defeat. Yet it was only a technical knockout. Rinker may have been able to draw a higher bid from the Mexicans, but it was still around 10%-15% below the point that the most optimistic shareholders had hoped for.
There can be little doubt that the best of both worlds has been achieved for both of Cemex and Rinker. Clearly there has been plenty of time for a competing bid to emerge – obviously what Rinker would have liked – but this has not materialised.
Likewise, it has given Cemex plenty of time to look for alternative targets either as a serious proposition or to force Rinker’s hand. They have obviously been unable to do so.
The other issue affecting the bid price – one that is completely out of the control of either Cemex or Rinker – is the Australian dollar exchange rate, currently sitting at USD$0.82.
With the movement in the FX rate since the bid was first announced, the USD$13 bid would initially have been worth around the AUD$17 level. By the time the AUD had risen to USD$0.82, the same USD$13 was now only worth around AUD$15.85, and that’s a big difference.
For both parties it seems as though the time is now right and probably gives us an insight into the respective companies’ opinion on the FX rate.
Cemex’s decision to act now, and Rinker’s decision to pretty much accept the bid now probably indicates that both have a negative continuing outlook for the USD. It isn’t any stretch of the imagination to think that the Aussie dollar could reach 90 cents in the next few months which would have meant Cemex would need to increase the bid to USD$17.55 – nearly USD$2 above yesterday’s bid price – in order to achieve the current AUD$19.50 price.
There are some expectations that institutions may hold out for more, but if they too are bearish on the USD they would be better off accepting the bid, hedging their FX exposure and taking the cash to use elsewhere.
The Daily Reckoning Australia