Finance, Accounting and Control Case Study

Mexican Cement MNC, CEMEX: Reducing Cost of Capital Through Globalising Operations?

OR

Abstract:
After having secured its leadership in Mexico, Cemex began to look for opportunities beyond Mexican borders. By the end of 2000 Cemex became the third largest cement company in the world. The growth of Cemex may be attributed to its inorganic growth strategy. Geographical diversification made Cemex reduce its volatility of cash flow, manage its capital from the diverse source of finance and reduce its borrowing cost by investing in investment grade countries. All these helped Cemex manage its overall risk very efficiently and reduce its cost of capital. On the flip side, its risk and cost of capital due to cross border business activities were difficult to ascertain. So the question remained whether Cemex could insulate risk by the way of geographical diversification and thus reduce the cost of capital?

Pedagogical Objectives:

• To understand the world cement industry.
• To understand the financial strategy of Cemex.
• To analyse the various factors that helped Cemex to reduce its cost of capital.
• To debate the effect of over-diversification that might endanger Cemex.

Keywords :  Cemex, Mexico, Cement industry, Global cement production, World cement demand, The major players in the world cement industry, Weighted average cost of capital, Valenciana and Sanson, Investment grade country, Diverse funding sources, Southdown, Financial leverage and operating leverage, Operating free cash flow, Post merger integration (PMI), Systematic risk