CEMEX's Acquisition Strategy - The Acquisition of Rinker Group


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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

Case Details:

Price:
Case Code : BSTR376 For delivery in electronic format: Rs. 500;
For delivery through courier (within India): Rs. 500 + Rs. 25 for Shipping & Handling Charges

Themes

Mergers and Acquisitions
Case Length : 29 Pages
Period : 2005-2010
Pub Date : 2010
Teaching Note : Not Available
Organization : CEMEX S.A.B de C.V
Industry : Cement
Countries : Mexico, Australia

Abstract:

CEMEX SAB de CV (CEMEX) is a Mexico based cement company. As of 2009, it is one of the top ten cement manufacturers in the world. The operations of CEMEX grew rapidly since the mid-1980s as the company chose both inorganic and organic route for expansion. Over the years, CEMEX had developed post merger integration expertise and was able to generate enough cash flows from the acquired company to pay most of the debts it incurred for the acquisition. However, in mid-2007, CEMEX's acquisition of Australia based Rinker group landed the company in a financial debt trap. CEMEX paid US$ 14.2 billion to acquire Rinker and estimated that it would be able to generate enough cash flows from Rinker's operations to pay off the additional debt obligations that it incurred due to the acquisition.

Acquiring Rinker strengthened the operations of CEMEX in the US. However, since late 2007, the real estate market in the US faced a slowdown. The prices in real estate markets started falling, unemployment increased and several financial institutions went bankrupt. These events led to poor demand for building materials and tighter credit availability from banks. CEMEX could not generate enough cash flows in 2008 and 2009 because of fall in sales. At the same time, it had to refinance its short term debt at several instances leading to increase in cost of financing. Rating agencies downgraded CEMEX's credit rating leading to increase in cost of capital. CEMEX had to sell some of its assets, some acquired through Rinker's acquisition to raise funds and pay off debts. Though selling certain operations resulted in lower cash flows than estimated, CEMEX remained bullish on the long term prospects of the US economy and was confident that it would bounce back strongly.

Issues:


» Examine the rationale for CEMEX's acquisition of Rinker.

» Understand the advantages of strong post merger integration expertise.

» Appreciate the importance of timing of an acquisition.

» Analyze the disadvantages of excessive debt financing.

» Study the importance of geographical diversification.

Contents:

  Page No.
Introduction 1
Background Note 2
The Acquisition Integration Process 4
Acquisition of Rinker 5
Post-Acquisition Problems 9
Future Tense? 13
Exhibits 15

Keywords:

CEMEX, Rinker, Post-Merger Integration, Global Cement Industry, Subprime Crisis, Leverage, Debt Credit Rating, Acquisition Integration Process, Capital Structure, CEMEX Way, Internal Benchmarking Process, Global Cement Industry, Geographical Diversification, Free Cash Flow Method, US Cement Industry, Macroeconomic Environment, Ordinary Participatory Notes, Financial Statements

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