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Rinker Rejects Cemex Bid

By Reuters
Tuesday, 28 Nov 2006 | 10:24 PM ET

ustralian building materials maker Rinker Group formally rejected a $12 billion takeover bid by Mexico's Cemex on Wednesday as opportunistic, and said the company was worth nearly 40% more.

Rinker said the bid from Cemex, the world's third biggest cement maker, did not recognise the value of Rinker's market positions and assets, and was trying to take advantage of a downturn in the U.S. housing market.

"Shareholders should not surrender their stake in a company that is generating excellent returns now and has excellent prospects," Rinker Chairman John Morschel said in a statement. "This bid is opportunistic and far too low".

Cemex bid $13 (A$16.64) a share on Oct. 27 in what would be the biggest takeover ever by a Mexican company, after Rinker's share price fell sharply this year on a weak residential construction outlook in its key markets of Florida and Arizona.

Rinker shares rose 2.2% in afternoon trade.

Analysts have said Cemex may have to pay A$19-A$21 to win over Rinker investors. Morschel said Rinker believed Cemex could offer more than A$23 a share, while an independent report commissioned by Rinker valued the company at A$20.58 to A$23.04 a share -- 29% above the Cemex offer at the mid-point.

Fund managers said the valuation appeared attractive."I've only looked at the headline valuation. We've always said it needed to have a 20 in front it," said Rob Patterson, managing director of Argo Investments, which holds 0.4% of Rinker.

The independent report by Grant Samuel said its valuation was equivalent to an EBITDA (earnings before interest, tax, depreciation and amortisation) multiple of 10.4-11.6 times the median broker forecast for Rinker's 2006/07 EBITDA of $1.44 billion.

While this was high compared with recent acquisitions in the heavy construction materials industry, Grand Samuel believed the premium was justified as Rinker was strategically important and a superior asset to recent acquisition targets in the sector.

Morschel said Rinker, which has annual revenue of more than $5.1 billion,was generating excellent returns and its long-term outlook was very positive.

Rinker, which makes around 85% of its earnings in the United States, has previously said the Florida housing market was likely to bottom in the next 6-12 months, but Cemex says it will take longer to turn around.

A slumping U.S. housing sector slowed U.S. economic growth to its weakest in over three years in the third quarter, although U.S. existing home sales unexpectedly rose in October, according to data released on Tuesday.

The Grant Samuel report said it believed Rinker's internal forecast for some bounce-back in housing permits in Florida and Arizona from late 2007 was not overly optimistic.

Cost savings and expected growth in non-residential sectors also meant a material deterioration in overall profitability was unlikely, the report said.

Buying Rinker would solidify Cemex's dominance in the U.S. cement market,open the door in Australia and give it a foothold in China, where Rinker has four plants.

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