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Mexico’s Cemex to Buy Southdown of Houston

From Reuters

Mexican cement giant Cemex said Friday it will buy the No. 2 U.S. cement producer, Southdown Inc., for $2.6 billion, in the biggest-ever acquisition by a Mexican company that would capture a prize U.S. asset in an industry that is consolidating globally.

Cemex, the third-largest cement producer in the world, will pay $73 a share in cash, a 30% premium over Houston-based Southdown’s closing price of $56 Thursday on the New York Stock Exchange.

“We need Southdown because it is in some of the very important U.S. markets,” Cemex Chief Executive Lorenzo Zambrano said in a conference call with analysts Friday morning. “We see our role as a consolidator of the industry and we see this transaction would help us in increasing that role.”

Analysts applauded the deal, saying it will grow Cemex’s small footprint in the U.S. market, and increase the Mexican company’s presence in the industrialized world.

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But some have questioned the price paid for Southdown. Cemex’s share price reacted negatively to the news, which came hand in hand with a stock repurchase announcement.

“Strategically, it is a favorable operation . . . but they are paying about $243 per ton of installed capacity, which is very high,” said Carlos Perezalonso, an analyst who covers Cemex for ABN-Amro.

Cemex officials, however, said the price was fair and that a $243-per-ton estimate did not take into account Southdown’s ready-mix, concrete and aggregates production.

Cemex, based in the northern Mexico industrial center of Monterrey and with operations in 30 countries around the world, will also assume $185 million in long-term debt. Including assumed debt, the value of the deal was put at $2.8 billion.

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The boards of directors of both companies have approved the deal, which is still subject to regulatory approval. Cemex will start its tender offer on or before Oct. 5 and the deal is conditioned upon at least two-thirds of Southdown’s fully diluted shares being tendered prior to the expiration of the offer.

In New York Stock Exchange trading, Southdown shares rose $16.38 to close at $71.25, while Cemex’s American depositary receipts fell 88 cents to close at $20.06.

The combined company will have more than $6.3 billion in annual sales and 77 million tons in installed capacity, an 18% increase in capacity for Cemex, which had 65 million tons previously, of which only 1.2 million were in the U.S.

“We’ve always said we want to be the most competitive in the world, not necessarily the biggest,” Francisco Garza, president of Cemex’s North America operations, told Reuters.

Zambrano said Southdown was attractive because it is efficient, but said they would make it even more so by melding it into Cemex’s much-admired, highly technological global system for procurement, production and distribution.

Cemex also said Friday that its board has approved a repurchase program of up to $500 million of the company’s shares traded on the Mexican stock market. The repurchased shares, about equivalent to 8% of the company’s market capitalization, will be canceled.

Southdown operates in 27 U.S. states and also mines, processes, and sells construction materials and specialty mineral products in the eastern U.S. and California.

Clarence Comer, president and chief executive of Southdown, will become president and CEO of the U.S. operations of the combined company.

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The deal is the latest in a global tussle among the world’s cement makers who are trying to gain greater international market share through a wave of mergers and acquisitions.


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