Australia's Rinker seen rejecting Cemex offer

MELBOURNE - Australia's Rinker Group is likely to reject a US$12 billion bid from the world's third-ranked cement maker Cemex, analysts said as a top official of the Mexican bidder was reported arriving in Sydney.

Mexico-based Cemex, which operates in 50 countries, said on Friday it was making an all-cash US$13 per share ($19.88) per offer for Rinker. The unsolicited bid also includes taking on Rinker Group Ltd's debt.

Rinker was spun out of sugar and building materials group CSR in 2003.

A source close to Rinker said the bid was opportunistic, based on a share price that was at a cyclical low, even though the bid price represented a premium of more than 20 per cent to Rinker's closing price on Thursday, before talk of a takeover began to lift the stock.

The bid announcement drove Rinker's New-York traded ADRs up 33.15 per cent to close at US$71.10, putting them at about a 9 per cent premium to the Cemex bid price, and suggesting the market expects a higher offer.

Rinker's ADRs represent 5 ordinary Rinker shares, and Friday's ADR price indicates an Australian share price of about A$18.60 per Australian share at an exchange rate of A$1.31 for $1. The Australian shares had already jumped 5.8 per cent to close at A$14.70 earlier on Friday, rallying in late trade on speculation a bid would be announced.

Goldman Sachs JB Were analyst Matthew McNee said Cemex would likely need to raise its bid to more than A$20 ($23.46) a share have any chance of success, with its current offer significantly undervaluing Rinker.

"We believe Rinker offers Cemex significant potential synergy benefits and the quality of Rinker's assets and market positions in high growth markets is unmatched in the sector," he said in a research report.

A Rinker spokeswoman said the company was expected to make a statement before the stock exchanged opened on Monday morning.

"We have had a board meeting this weekend and the directors have been reviewing all of the documents. They will be having another board meeting on Monday morning," she said.

Rinker has appointed UBS as its financial advisers.

The deal would give Cemex, already the top US cement maker, even bigger operations there, as 80 per cent of Rinker's earnings come from the United States.

It would also open the door for Cemex in the steady and sizeable market of Australia, and give it a foothold in China, where Rinker has four plants.

The managing director of funds manager Ausbil Dexia, Paul Xiradis, noted that the company's shares traded above A$20 a share in April of this year, and that a bid would likely need to be above A$17 a share to succeed.

"The free cash flow the company generates is pretty high and they do have very strong positions in the markets they are associated with, in the US in particular," he said. "They are a prized asset."

Goldman Sachs JBWere said other potential bidders for Rinker were larger rival global cement companies Lafarge and Holcim , with CRH Plc also a possibility.

It also suggested that as a defensive move, Rinker could attempt to make a take-over or agree a friendly merger with one of its US peers such as Vulcan Materials , Martin Marietta Materials , or Florida Rock Industries .

The Cemex bid price values Rinker at an earnings before interest, tax, depreciation and amortisation (EBITDA) multiple of 9.2 times, based on earnings reported for the 2006 fiscal year, it said.

Cemex senior vice president corporate strategic planning, Juan Pablo San Agustin arrived in Sydney on Sunday morning, Australian Associated Press reported.

"We are more than willing to engage with them (Rinker management) whenever they feel appropriate," San Agustin told reporters.

- REUTERS