Short Paper: CEMEX And The Rinker Acquisition

In order to complete this assignment you will be required to read part A and B (attached) of the CEMEX and the Rinker Acquisition.

The “CEMEX and the Rinker Acquisition” case study illustrates the financial restructuring of a nonfinancial corporation and focuses on t

Copyright © 2017 Thunderbird School of Global Management, a unit of the Arizona State University Knowledge Enterprise. This case was written by Professor Michael H. Moffett for the sole purpose of providing material for class discussion. It is not intended to illustrate either effective or ineffective handling of a managerial situation. Any reproduction, in any form, of the material in this case is prohibited unless permission is obtained from the copyright holder.

Michael H. Moffett

Cemex and the Rinker Acquisition (A) CEMEX’s transformation is about much more than improving our company’s cost structure. Our underlying goal is to reengineer our corporate DNA.

Lorenzo Zambrano, Chairman and CEO, CEMEX, Letter to Shareholders, Annual Report 2012, p. 6.

CEMEX S.A.B. de C.V. (NYSE: CX)—CEMEX—had made a name for itself in the global marketplace for two things—excellence in execution and rapid growth through acquisition. In an era in which globalization was a practice for multinational firms calling highly industrialized countries home, CEMEX broke the mold. It was a multinational player calling a lower-income country home—Mexico. By 2006, after a six-year growth run in its major construction markets of Mexico, the United States, and Spain, CEMEX was once again on the prowl. Its newest prey was an Australian multinational with significant operations in the United States, the Rinker Group. But Rinker was not for sale.

CEMEX—A Brief History Founded in 1906, CEMEX had grown over the past century, through a series of mergers and acquisitions, to being one of the largest cement manufacturers in the world. The company had closed 2006 with more than US$18.3 billion in sales across 50 countries.

CEMEX was one of the largest cement producers in the world. It offered a variety of different types of cement for various uses, including Gray Ordinary Portland Cement, White Portland Cement, Mortar, Oil-well Cement, and Blended Cement. Cement is produced by combining crushed limestone and clay. This mix is then heated to extremely high temperatures to form clinker, small dark gray modules approximately two inches in diameter. Clinker is then ground into different sizes and combined with gypsum. The resulting product is bagged and sold as cement. Cement is typically combined with water and other products to form hardened construction materials such as concrete (the world’s most widely used construction material). CEMEX sold its cement products to wholesalers, readymix concrete producers, industrial customers, and contractors. It also sold bagged cement to individual retail customers, particularly in emerging markets. Other major competitors included Heidelberg Cement (Germany), Holcim (Switzerland), and Lafarge (France).

Leadership and Competencies CEMEX’s period of dramatic growth had come under the leadership of Lorenzo Zambrano, the grandson of the founder. Lorenzo had joined the company in 1968 upon the completion of his MBA at Stanford, working his way up to the chief executive officer (CEO) position in 1985.

In 1992, Lorenzo and CEMEX acquired the two largest cement producers in Spain, the Mexican company jumping the Atlantic in a major expansion into global operations. In the years that followed, the company made acquisitions in Venezuela, the United States, Panama, the Dominican Republic, Colombia, the Phillippines, Indonesia, Thailand, Puerto Rico, and the United Kingdom. The string of international acquisitions culminated in the single largest in 2007 with the purchase of Rinker, a large Australian cement producer with large holdings and operations in the United States. Given the massive acquisition and rapid expansion of the company, integration of acquisitions with speed and efficiency had become an area of excellence for CEMEX.

The company had three major lines of product—cement, concrete, and aggregate—central to construction and building of all kinds. A highly cyclical and commoditized industry, CEMEX had pursued operational excellence


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and customer service as an attempt to differentiate itself in a highly competitive market. One specific area of Lorenzo Zambrano’s personal focus was information technology, and, as a result, the company was considered one of the world’s leaders in the integration of information technology systems in all dimensions of operations, including the GPS tracking and dispatching of concrete trucks.

CEMEX was now one of the three true global players in its industry, a striking achievement for a firm originating from what many considered an emerging market. The other two global players in this industry, Holcim (Switzerland) and Lafarge (France), had long held major market shares in most regions of the world. The two now saw CEMEX as a growing threat. That was, in fact, what Zambrano had always envisioned.

Growth Through Acquisition CEMEX had successfully completed more than 15 acquisitions between 1992 and 2006. Zambrano had been aggressive, moving into a multitude of markets rapidly. They had also been expensive. Zambrano was often criticized for overpaying and then financing the purchases with debt, often short-term debt. But CEMEX had repeatedly accomplished what many of its rivals had not—it had repeatedly achieved operating cost synergies in new acquisitions. Many companies promised cost savings after acquisition, but CEMEX had consistently delivered. Zambrano’s record spoke for itself—and CEMEX had rapidly become one of the top concrete and cement companies in the world.

In September 2004, the company had acquired RMC Group, a British building materials firm, and the world’s largest supplier of ready-mixed concrete. The price tag was large: US$4.15 billion cash, plus CEMEX would assume US$1.6 billion in RMC debt, for a total of US$5.75 billion. The acquisition doubled CEMEX’s total revenues. With substantial operations across Europe and the United States, it would expand CEMEX’s global footprint dramatically. This was considered a predatory acquisition, as RMC had been operating at a loss and was underperforming compared to major competitors.

The RMC acquisition allowed CEMEX to enter markets difficult to enter on its own. With operations in France, Germany, Poland, Hungary, and the Czech Republic, CEMEX—in a single acquisition—gained access to a number of relatively middle-income markets that would be costly to enter via greenfield investment. These were markets where CEMEX’s primary rivals, Lafarge and Holcim, already held significant shares.

Indeed, the company prides itself on improving the management of the companies it takes over. The large cement plant at Rugby, in England, that is now part of the CEMEX empire, was notoriously bug-ridden under its old owners—often running at only 70% of capacity. Within two months of the CEMEX takeover, it was up to 93%. Mr Zambrano attributes the change to the implementation of the “CEMEX way.”

“The Master Builder—How Lorenzo Zambrano Built a Global Leader from Modest Origins in Mexico,” The Economist, October 13, 2005.

Exhibit 1. The RMC Acquisition at a Glance Offer: 855 pence per share (US$145.43), a 39% premium over the RMC share price

(30-days prior) Cost: US$5.75 billion, including assumption of debt Financing: Short-term debt RMC Revenue: US$7.9 billion RMC Employees: 27,000 Regulatory Approval: CEMEX needed to gain majority approval of at least 75% in value of RMC’s

shareholders Expected Cost Synergies: US$200 million (centralized purchasing, management, back-office operations) Market Reaction: CEMEX share price fell 10% in one day; Fitch, Moody’s and S&P all placed CEMEX

on credit watch for a possible downgrade of CEMEX for debt.

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In his letter to shareholders for 2006, Zambrano noted that CEMEX’s geographic and product strategy of diversification continued to perform, and that the RMC acquisition had already delivered the required return on capital employed (ROCE) of 10%, and operating cost synergies of more than US$360 million.

The Rinker Acquisition First, we need to continue to build an integrated platform across our industry’s value chain in key markets around the world. This is the logic that underpinned our acquisition of RMC, and it is the logic that will define our acquisition strategy going forward. In that context, last October we made an offer to acquire Rinker Group Limited, an Australian-based building-materials company whose business is largely concentrated in the United States. Our offer reflects CEMEX’s strategic commitment to grow through disciplined allocation of capital. All of our investments—whether new acquisitions or growth capital expenditures—will remain subject to our strict, disciplined capital allocation criteria. We are in the business of profitable growth, not growth for the sake of size alone. In the absence of investments that meet our strict criteria, we will continue to use our free cash flow to strengthen our capital structure.

Lorenzo H. Zambrano, Letter to Shareholders, CEMEX Annual Report, 2006, p. 6.

The Business Opportunity Fresh off the successful acquisition and integration of RMC, Zambrano now focused on The Rinker Group, Ltd., an Australian-based but U.S.-focused building materials company. Although Rinker was an Australian company by incorporation, 80% of its operations— sales and profits—were generated in the United States. Within the U.S., roughly 75% of Rinker’s revenues were generated in Florida (56%) and Arizona (17%). On a worldwide basis, the two U.S. states made up 57% of Rinker’s revenues. Rinker’s U.S. operations would greatly strengthen CEMEX’s position in several U.S. states that had seen rapid construction growth in recent years, while Rinker’s Australian operations would expand CEMEX’s global reach.

Rinker was a large company and would increase CEMEX sales by 28%, as seen in Exhibit 2. Rinker’s U.S. and Australian operations are detailed in Exhibit 3. But greater profits did not translate directly into free cash flow (FCF), as Rinker’s FCF as a percent of EBITDA was smaller than CEMEX’s. (Free cash flow (FCF) is defined as operating cash flow less capital expenditures, and represents the cash flows generated by the business that are available for discretionary use after reinvesting in the business—capex.) CEMEX calculated FCF with maintenance capex, not including what it termed strategy/growth capex.

A Long Weekend The unsolicited bid was unexpected. Rumors began swirling in New York on Friday October 27, 2006, that CEMEX was about to make an offer for Rinker. Rinker’s executive team immediately filed a statement with the U.S. Securities and Exchange Commission (SEC) that they were unaware of any such offer. Then, on Friday evening, the Chairman of Rinker, John Morschel, received a phone call from a senior vice president of CEMEX notifying him that CEMEX intended to make an unsolicited and hostile takeover bid for Rinker.

Exhibit 2. Cemex and Rinker Combined, 2006

(Millions of US dollars) Cemex Rinker Combined Change Sales 18,249 5,108 23,357 28% EBITDA 4,138 2,232 6,370 54% EBITDA margin 22.68% 43.70% 27.27% Net profit 2,378 744 3,122 31% Net profit margin 13.03% 14.56% 13.36% Free Cash Flow (FCF) 2,689 611 3,300 23% FCF/EBITDA 64.98% 27.36% 51.80%

Source: Constructed from published financial results. Note: Cemex’s fiscal year ends Dec. 31, whereas Rinker’s fiscal year for 2006 closed on March 31, 2006.

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Lorenzo Zambrano, in an interview the following day, explained that CEMEX had intended to first talk directly with Rinker’s leadership before advancing with the offer publicly, but as rumors of the potential deal leaked into the market, CEMEX feared that Rinker’s share price would begin to rise increasing the potential cost. (This did indeed prove true.) They had therefore been forced to go public with the offer sooner than they had planned. CEMEX had never made a hostile acquisition attempt before, despite having made 15 acquisitions under Zambrano’s leadership. Hostile acquisitions were notoriously more difficult. They often attracted competing offers, resulting in extended time delays and increasing the costs of closing the deals—if successful.

CEMEX was offering US$13.00 per share (A$17.00/share), a 27% acquisition premium over Rinker’s closing share price the previous day on the New York Stock Exchange. The acquisition premium is the amount by which the takeover price exceeds the current market price of shares just prior to the offer in order to entice shareholders to relinquish control of the company. At 27%, this was roughly average for recent acquisitions. The total offer was worth US$12 billion. After an emergency board meeting over the weekend, Rinker’s board publicly opposed the offer on Monday morning.

Shareholders should not surrender their stake in a company that is generating excellent returns now and has excellent prospects. This bid is opportunistic and far too low.

Rinker Chairman John Morschel

Rinker in the weeks and months that followed argued that the firm was worth much more, and that CEMEX could afford to pay much more. Rinker engaged the consulting firm Grant Samuel, a corporate advisory group focused on the Asian Pacific marketplace, to conduct a detailed valuation of Rinker to aid in determining what might be considered a fair value for the firm. Rinker’s board believed the CEMEX offer undervalued the company and was opportunistic, implying a predatory approach to a market share price that was only down in the short term.

Grant Samuel’s report, published one month later, provided a comprehensive series of analyses and arguments that Rinker was indeed worth much more, and that the current equity markets were undervaluing the firm as a result of the recent decline of the construction industry in the United States. Exhibit 3 presents a portion of that report.

The argument that Rinker’s share price was down—for the moment—highlighted an issue a number of the analysts critical to the acquisition had also noted—that the U.S. housing market was already sliding into recession. As illustrated in Exhibit 4, the fall in U.S. housing starts had been sudden and dramatic, but had started in February of 2006, some eight months previous.

Given that most of Rinker’s sales and profits were generated in the United States, specifically in Florida and Arizona, a slowdown in home construction was an early sign of falling returns for Rinker’s business. This decline in construction activity, starting only eight or nine months prior to the tender offer, was a definitive indication that future construction material demand might fall.

Grant Samuel conducted a valuation of Rinker using the two most widely used methodologies: discounted cash flow (DCF), and multiples. Although DCF valuation is considered theoretically more sound, its use often leads to exceedingly extreme values, high and low, compared to market prices.

Discounted Cash Flow Valuation The DCF analysis presented in Exhibit 5 is a baseline analysis from CEMEX’s viewpoint. The value of the prospective acquisition must include all incremental impacts on the business from the purchase and assimilation with CEMEX’s current operations. In this case, if CEMEX were to acquire Rinker, CEMEX believes it can reduce operating expenses of Rinker—so-called cost synergies—by US$130 million per year once integrated with CEMEX’s existing operations.

The DCF analysis in Exhibit 5 uses the same baseline assumptions as Grant Samuel’s analysis. Rinker’s hypothetical 2007 year-ending EBIT (Rinker’s 2007 fiscal year would close March 31, 2007, roughly four months from the time of the analysis), established the starting point for the DCF. Earnings were projected a full 10 years

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Exhibit 3. Rinker’s Opposition to the Takeover: CEMEX’s Offer is Opportunistic CEMEX’s Offer was announced after the Rinker Share price fell significantly due to a weaker short-term outlook for residential construction. Rinker’s earnings are partly dependent on the level of activity in the construction industry in its various regional geographic markets. Construction activity has historically been cyclical. The timing, magnitude and duration of each cycle varies. Rinker’s residential construction markets are currently experiencing a slowdown in the US and in some Australian regions. Between April and October 2006, the Rinker Share price declined by more than 40%. Your Directors believe that the Rinker Share price performance during that period was the result of the market focusing on a weaker short-term outlook for residential construction in some of Rinker’s key markets, rather than changes in Rinker’s long-term outlook.

On 9 November 2006, in conjunction with Rinker’s release of its results for the half year ended 30 September 2006, Rinker provided the market with an update of its earnings guidance. In this guidance your Directors advised that the results for the year ending 31 March 2007 are likely to be around the bottom end of the earnings guidance range of US $0.84 to US $0.90 per Rinker Share. Although the short-term outlook for residential construction is subdued, Rinker has put in place a number of strategies to reduce the impact on earnings. These strategies include rationalising the workforce, managing working capital, deferring capital expenditure, shifting to commercial and civil projects and increasing prices to recover increased costs.

1 From 20 November 2006, Rinker Shares have traded ex the interim dividend for the half year ended 30 September 2006. CEMEX’s Offer price is based on the average Reserve Bank Mid-Point Rate from 20 November 2006 to 24 November 2006 and subtracts the A$0.16 per Rinker Share interim dividend to be paid on 11 December 2006. CEMEX’s Offer gives it the right to reduce the Offer price by an amount equal to any dividends paid to you by Rinker during the Offer Period. If CEMEX does not exercise this right, the A$0.16 per Rinker Share interim dividend to be paid on 11 December 2006 would be added back. The rate used by CEMEX to convert the US$ Offer price to A$ is not certain and may differ significantly from the Reserve Bank Mid-Point Rate. This rate is used for illustrative purposes only. 2 Based on the Rinker Share price at the close of trading on the ASX on 26 October 2006, which was the day prior to the announcement of CEMEX’s Offer.

Source: “Reject CEMEX’s Takeover Offer,” Target Statement, Rinker, November 29, 2006, p. 21.

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into the future, with a terminal value capturing earnings and cash flows past that point. The baseline analysis assumes 3.5% per annum EBIT growth, and corporate income taxes based on the U.S. corporate income tax rate of 35%. Cash flows for capital expenditures were assumed to grow 2.5% per year, with depreciation charges growing 2% per annum. The terminal value assumed net operating cash flow (NOCF)—the sum of net operating profit after-tax plus depreciation and capex—would grow at 1% per annum for all years past year 10 and used the baseline discount rate of 8%.

Grant Samuel noted that capex for a heavy manufacturing firm like Rinker is typically lumpy, meaning that it has a tendency to occur in large pieces periodically over the life of the business. Grant Samuel believed that capex would total roughly US$800 million (present value) over time. The baseline analysis had not included any form of lumpy, but was relatively close in total to the US$800 million figure.

Exhibit 4. U.S. Housing Starts: January 2000–October 2006

Source: Data drawn from “New Privately Owned Housing Units Authorized by Building Permits in Permit-Issuing Places,” U.S. Census Bureau, seasonally adjusted annual rate.

Exhibit 5. Discounted Cash Flow Valuation of Rinker (millions of US dollars) Valuation year 0 1 2 3 4 5 6 7 8 9 10 Calendar year Assume 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 EBIT—baseline 1,053.9 Cost synergies 130.0 EBIT 3.5% 1,183.9 1,225.3 1,268.2 1,312.6 1,358.6 1,406.1 1,455.3 1,506.3 1,559.0 1,613.5 1,670.0 Less recalculated taxes 35.0% (414.4) (428.9) (443.9) (459.4) (475.5) (492.1) (509.4) (527.2) (545.6) (564.7) (584.5) Net operating profit after tax 769.5 796.5 824.3 853.2 883.1 914.0 946.0 979.1 1,013.3 1,048.8 1,085.5 Add back depreciation 1.0% 200.0 202.0 204.0 206.1 208.1 210.2 212.3 214.4 216.6 218.7 220.9 Capex 2.5% (100.0) (102.5) (105.1) (107.7) (110.4) (113.1) (116.0) (118.9) (121.8) (124.9) (128.0) Terminal value 1.0% 17,002.9 Net cash flow for discounting 869.5 896.0 923.3 951.6 980.8 1,011.0 1,042.3 1,074.6 1,108.1 1,142.6 18,181.4

WACC (discount rate) 8.0% Present value of cash flows 15,530.7 Present value of terminal value 7,875.6 Less market value of debt (1,082.2) TV as percent of total PV 51% Equity value of Rinker 14,448.5 Present value of capex 658.6 Shares outstanding (millions) 965 Value per share (US$) $14.97

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The discount rate utilized in the DCF analysis proved to be an item of some debate. In principle, CEMEX’s cost of capital was lower than Rinker’s. Given the primary objective of the valuation analysis of Grant Samuel was to value Rinker both independently—and in the eyes of CEMEX—a number of different discount rates were used in the scenario analysis with a baseline rate of 8%. The resulting DCF of Rinker’s cash flows was then reduced by the current market value of outstanding debt obligations, US$1,082.2 million, and a value per share calculated assuming 965 million shares outstanding. Exhibit 6 is only one of a multitude of scenarios possible, but does serve as a baseline DCF value. At US$14.97 per share, this was 15% above CEMEX’s current offer of US$13.00.

Financial Multiples Valuation Grant Samuel’s multiples valuation focused on multiples of EBITDA and EBIT seen in other recent acquisitions in the industry. After evaluating a number of recent deals, high and low multiple ranges were defined (see Appendix 5). Based on expected EBITDA and EBIT values for Rinker, a range of values for the company and share value were calculated. The results are presented in Exhibit 6. The lowest share value was US$13.50/share. On the upper end, multiples indicated the share value could be as high as US$15.07/share.

Grant Samuel’s approach was to blend the two methodologies, although it noted in its final report that the multiples analysis was seen more as a maximum, a ceiling on possible values (… the implied earnings multiples served as a constraint on value).1 The consultant’s conclusion was that Rinker’s value lay within a range between US$14.2 and15.9 billion, or US$15.85–US$17.74 on a per-share basis. Curiously, this range was higher than that indicated by either the DCF or multiples analysis.

Time and Value Although CEMEX had extended its offer to April 7, 2007, in the hope of obtaining the needed 90% approval of shareholders under Australian law, Rinker’s shareholders had not warmed to the offer. CEMEX, still wanting to close the deal, considered revising their offer.

1 “Reject CEMEX’s Takeover Offer,” Target Statement, Rinker, p. 60.

Exhibit 6. Valuation of Rinker with Multiples (millions of US dollars)

High End or Range Low End or Range Multiples Value Multiple Value US$/share Multiple Value US$/share EBITDA 12 months ending Sept 2006 $1,235.3 11.7 $14,453 $14.98 10.5 $12,971 $13.44 End of year, March 2007 $1,218.7 11.9 $14,503 $15.03 10.7 $13,040 $13.51 End of year, March 2008 $1,206.1 12.0 $14,473 $15.00 10.8 $13,026 $13.50 EBIT 12 months ending Sept 2006 $1,068.0 13.6 $14,525 $15.05 12.2 $13,030 $13.50 End of year, March 2007 $1,053.9 13.8 $14,544 $15.07 12.3 $12,963 $13.43 End of year, March 2008 $1,010.2 14.4 $14,547 $15.07 12.9 $13,032 $13.50

Source; Grant Samuel. EBITDA and EBIT values for 2007 and 2008 are based on Grant Samuels forecast of Rinker returns.

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Appendix 1. Rinker Group Consolidated Income Statement

Year ended 31 March (US$ million) 2005 2006 2007 Trading revenue 4,309.7 5,108.4 5,337.3 Cost of sales (2,399.2) (2,666.3) (2,744.0) Warehouse and distribution costs (824.6) (1,015.2) (1,058.6) Selling, general and administrative costs (343.1) (373.8) (366.3) Takeover defence costs – – (14.5) Share of profits from investments using equity method 35.1 32.6 25.3 Other income 21.1 68.4 44.5 Other expense (23.9) (8.5) (5.8) Profit before finance and income tax expense 775.1 1,145.6 1,217.9 Interest income 22.2 21.7 15.9 Finance costs (54.2) (41.8) (57.3) Profit before income tax expense 743.1 1,125.5 1,176.5 Income tax expense (244.9) (381.9) (390.1) Net profit 498.2 743.6 786.4

Net profit attributable to minority interests 5.0 3.4 4.0 Net profit attributable to members of Rinker Group Ltd 493.2 740.2 782.4

Source: Rinker Group Ltd, Full Financial Report 2006, p. 1, and Full Financial Report 2007, p. 1.

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Appendix 2. Rinker Group Consolidated Statement of Cash Flow

Year ended 31 March (US$ million) 2005 2006 2007   Cash flows from operating activities Receipts from customers 4,489.2 5,320.3 5,717.2 Payments to suppliers and employees (3,615.8) (4,070.0) (4,375.1) Dividends and distributions received 15.7 30.5 28.5 Interest received 20.8 22.4 16.1 Income taxes paid (231.1) (360.8) (396.0) Net cash from operating activities 678.8 942.4 990.7   Cash flows from investing activities Purchase of property, plant and equipment (281.1) (383.7) (382.9) Proceeds from sale of PP&E 13.2 63.4 47.2 Purchase of subsidiaries and businesses (33.2) (160.8) (97.2) Proceeds from sale of interests in subsidiaries 104.8 53.7 9.2 Loans and receivables advanced (22.1) (19.9) (7.9) Loans and receivables repaid 40.8 37.0 3.1 Net cash (used in) investing activities (177.6) (410.3) (428.5)   Cash flows from financing activities Proceeds from borrowings 1,418.3 1,222.7 4,381.5 Repayments of borrowings (1,478.8) (1,438.7) (3,931.4) Dividends paid (104.1) (193.5) (559.2) Capital return – – (347.3) Minority interest distributions (2.6) (1.7) (3.0) Payments for Rinker Group share buyback (21.9) (337.2) (155.4) Proceeds from issuance of shares 0.7 – – Interest and other finance costs paid (49.2) (43.2) (54.1) Payments for shares held in trust (19.4) (22.7) (26.7) Net cash (used in) financing activities (257.0) (814.3) (695.6)   Net (decrease) increase in cash held 244.2 (282.2) (133.4) Cash and cash equivalents at the beginning of the year 328.5 588.2 289.1 Effect of exchange rate changes 15.5 (16.9) 30.2 Cash and cash equivalents at the end of the year 588.2 289.1 185.9   Reconciliation of net profit to net cash from operating activities Net profit 498.2 743.6 786.4 Depreciation, depletion and amortization 195.0 208.9 223.1 Transfer to provisions 18.6 1.9 (1.4) Interest expense 46.0 36.5 52.3 (Profit) loss on asset sales 3.2 (58.9) (36.2) (Increase) decrease in trade receivables (71.2) (86.5) 56.4 (Increase) decrease in inventories (58.5) (34.2) (32.1) (Increase) decrease in other assets 6.8 2.1 (5.1) (Decrease) increase in trade payables 33.0 95.9 (66.6) Net change in tax balances 15.3 21.1 (5.9) Other (7.6) 12.0 19.8 Net cash from operating activities 678.8 942.4 990.7 Exchange rate (A$ = US$) 0.7357 0.7471 0.7757

Source: Rinker Group Ltd, Full Financial Report 2006, p. 3, and Full Financial Report 2007, p. 3.

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Appendix 3. Rinker Group Consolidated Balance Sheet

Year ended 31 March (US$ million) 2005 2006 2007   Current Assets Cash and cash equivalents 588.2 289.1 185.9 Receivables 590.3 672.3 671.4 Inventories 300.9 330.9 373.7 Other current assets 25.7 20.7 23.1 Total current assets 1,505.1 1,313.0 1,254.1   Non-Current Assets Receivables 58.0 45.2 22.3 Inventories 10.0 8.6 9.8 Investments accounted for using equity method 159.6 132.9 148.0 Other financial assets 22.5 32.6 40.3 Property, plant and equipment 1,811.0 1,963.4 2,233.1 Intangibles, including goodwill 816.1 901.7 937.1 Other non-current assets 36.8 59.8 59.6 Total non-current assets 2,914.0 3,144.2 3,450.2   Total Assets 4,419.1 4,457.2 4,704.3   Current Liabilities Payables 494.3 542.2 511.8 Borrowings 257.1 5.4 9.4 Income tax liabilities 26.6 62.4 49.1 Provisions 72.6 76.2 77.4 Total current liabilities 850.6 686.2 647.7   Non-Current Liabilities Payables 46.7 94.1 88.8 Borrowings 610.9 645.2 1,092.3 Net deferred income tax liabilities 230.0 205.8 218.0 Provisions 129.8 138.6 144.5 Total non-current liabilities 1,017.4 1,083.7 1,543.6 Total liabilities 1,868.0 1,769.9 2,191.3   Net assets 2,551.1 2,687.3 2,513.0   Equity Contributed equity 1,475.9 1,138.7 636.0 Shares held in trust (21.1) (44.2) (52.3) Reserves 230.9 182.4 286.5 Retained profits 858.1 1,401.3 1,632.7 Equity attributable to members of Rinker Group 2,543.8 2,678.2 2,502.9 Minority interests 7.3 9.1 10.1 Total equity 2,551.1 2,687.3 2,513.0

Source: Rinker Group Ltd, Full Financial Report 2006, p. 2; Full Financial Report 2007, p. 2.

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Appendix 4. Rinker’s U.S. and Australian Operations

For the exclusive use of A. Robinson, 2019.

This document is authorized for use only by Ashley Robinson in FIN-336 Multinational Corporate Finance 19EW1 taught by SNHU INSTRUCTOR, Southern New Hampshire University from Jun 2019 to Nov 2019.



12 A02-17-0006

Appendix 5. Transactions in the Global Construction Materials Industry, 2000-2006

EBITDA EBIT Date Target Transaction Major Segments Consideration Multiple Multiple

Aug 2006 Ashland Paving & Construction Acquisition by CRH Ag As $1,300.0 5.9 11.4 March 2006 Civil and Marine Acquisition by Hanson Ce £245.00 9.4 na March 2006 Material Service Acquisition by Hanson Ag As $300.0 7.5 na February 2006 Lafarge North America Acquisiton of remaining 46.8% by Lafarge Ag As Ce Co $7,369.8 9.0 12.9 June 2005 Heidelberg Cement Acquisiiton of 48% by Spohn Cement Ag As Ce Co € 7,013.30 8.3 13.8 January 2005 Aggregate Industries Acquisition of remaining 85.3% by Holcim Ag As Ce Co £1,868.70 9.3 13.7 September 2004 RMC Takeover offer by Cemex Ag As Ce Co £2,408.70 7.2 16.8 May 2004 Frehner Construction Co Acquisition by Aggregate Industries Ag As $95.8 9.6 10.8 May 2003 S.E. Johnson Acquisiton by CRH Ag As $217.0 7.8 12.1 April 2003 Better Materials Acquisition by Hanson Ag As $152.0 7.3 11.9 July 2002 Kiewit Materials Takeover offer by CSR Ag As Ce $612.3 7.0 10.3 January 2001 Blue Circle Acquisition of remaining 77.4% by Lafarge Ag Ce Co £3,143.40 9.2 13.2 September 2000 Southdown Takeover offer by Cemex Ag Ce $2,675.4 6.9 8.4 August 2000 Tarmac United States assets Acquisition by Titan Cement Ag Ce Co $636.0 6.5 na June 2000 Florida Crushed Stone Acquisition by CSR Ag As Ce $266.0 8.7 na

Source: Grant Samuel analysis. Ag = Aggregates, As = Asphalt, Ce = Cement, Co = Concrete

Appendix 6. Rinker’s Cost of Capital

Risk-Free Market Risk Cost of Cost of Corporate After-Tax Percent Percent Market Weight Rate Beta Premium Equity Debt Tax Rate Cost of Debt Debt Equity WACC

United States 80% 4.60% 1.00 5.50% 10.10% 5.60% 35% 3.64% 25% 75% 8.485% Australia 20% 5.60% 1.00 6.00% 11.60% 6.60% 30% 4.62% 25% 75% 9.855%   100%       10.40%           8.759%

Notes: Based on Grant Samuel analysis provided to The Rinker Group under contract. Weights: Based on approximate sales and earnings for Rinker Group. Risk-Free Rates: Based on 10-year government bond yields for the United States and Australia. Beta: Grant Samuel assumption, although it was noted a number of other Australian institutions believe Rinker’s beta to be much higher, e.g., 1.59. Market Risk Premium: Grant Samuel. Percent Debt/Equity: Based on Rinker’s observed capital structure over recent 3-year period.

For the exclusive use of A. Robinson, 2019.

This document is authorized for use only by Ashley Robinson in FIN-336 Multinational Corporate Finance 19EW1 taught by SNHU INSTRUCTOR, Southern New Hampshire University from Jun 2019 to Nov 2019.

raditional financial metrics of corporate performance and indebtedness.

For this assignment, you will review the company’s performance, explain the company’s performance based on the information presented, and apply market knowledge. This assignment supports the final project through application of market knowledge, analysis of financial reports, and analysis of the company’s response to the 2007–2008 financial crisis.

Prompt: To complete this assignment, read parts A and B of the “CEMEX and the Rinker Acquisition” case study.

Apply market knowledge and address the company’s response to the 2007–2008 financial crisis.


Provide examples from the case study and previous learning.

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