Cemex Keeps Trying To Undermine Rinker

Sydney Morning Herald

Saturday March 17, 2007

Danny John

MEXICAN building materials group Cemex is continuing to chip away at the defences of its $15 billion takeover target Rinker.

Cemex has predicted more gloom for both companies' key markets in America, saying its own first-quarter earnings will fall because of the slump in housing construction.

The Mexican group said it expects its operating income to drop by 6.5 per cent on the back of steep declines in American sales of concrete and cement.

The US regulator, the Department of Justice, is due to make a ruling on the bid by the end of this month.

Cemex has used the poor performance of the residential construction sector as its main weapon against Rinker, which derives 80 per cent of its income from North America.

While the severe downturn is a double-edged sword for Cemex, it claims it will largely be able to offset the predicted $US36 million ($45.74 million) drop in first quarter earnings to $US520 million because of revenue growth in its home market of Mexico and from its other international operations in the UK and Spain.

"Most of our markets continue to show strong operating performance, mitigating the weak performance in the United States," said Rodrigo Trevino, Cemex's chief financial officer.

But the statement failed to move Rinker's investors. They pushed shares in the Australian-based building products conglomerate up a further 7c on Friday to $18.77 as they maintained the line that Cemex will have to offer around $20 a share to succeed.

Cemex's comments only went to confirm the recent profit statements of both Rinker and James Hardie, the other Australian company heavily exposed to the US housing market, that residential construction is in the doldrums.

The difference between the bidder and its target centres over the likely duration of the slump, what the effect will be on Rinker's earnings and which company is better suited to cope with the impact.

But the market has given Cemex a clear signal that its $16.74-a share-offer seriously undervalues Rinker.

© 2007 Sydney Morning Herald

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