CEMEX and the Rinker Acquisition A Case Solution

1. What makes growing internationally attractive to CEMEX rather than keeping its business within Mexico?

Between its first foreign purchase in 1992 and its Rinker acquisition in 2007, CEMEX achieved exceptional growth for a corporation situated in an emerging country. Furthermore, cost arbitrage cannot account for an EMNE's climb to global leadership in the cement industry due to the sector's poor value to weight ratio. In 2006, an offer was made to The Rinker Group, Ltd. CEMEX paid "a 27% acquisition premium over Rinker's closing share price the previous day on the New York Stock Exchange" for the purchase of over a billion dollars' worth of debt from Rinker Group Ltd. between the bid placement in 2006 and its completion in 2007. Management didn't start worrying about the company's deteriorating financial performance until the third quarter of 2008. CEMEX lost about $500,000 between September and October, suffered a dramatic reduction in sales, and was in serious jeopardy at the end of the year. The company paid down debt, reinvested $1.747 billion, and paid out dividends to shareholders totaling $0.476 billion with its 2008 earnings. They were able to make it through 2008 unscathed and finish the year with a healthy cash balance thanks to asset sales and a stock offering. However, Cemex had a difficult net cash flow situation in 2009. Sales alone wouldn't have been enough to keep the firm afloat, considering the dire straits it would have been in if 2008 had been a guide. To keep going and satisfy its creditors, Cemex has sold off more of their assets. For $480 million, the corporation sold its Hungarian and Austrian businesses. In addition, they made a $226.8-million profit on the sale of its Canary Islands business to a Spanish firm. Although Cemex wanted to keep selling assets in 2009, it was difficult to tell whether they would get fair market value during the financial crisis. Cemex needed to pause, consult with its shareholders, board of directors, and banks, and formulate a financial strategy to deal with the company's massive debt and keep it afloat during the global financial crisis. Cemex's largest risk during the 2007-2008 financial crisis was that it had amassed too much debt prior to the crisis, hence the company's reaction was subpar.