Is Rinker Moving Away From Cemex?

By Glenn Dyer | More Articles by Glenn Dyer

Rinker Group is proceeding with its ‘business as usual’ approach during the bid from Cemex of Mexico, but there are more signs the Mexican company’s efforts will come to naught unless there’s a significant increase in the price.

Rinker said yesterday it had bought an American construction materials group called Walling Sand & Gravel based in the West Coast state of Oregon.

Rinker said it was a move to expand its business in the northwest American market and away from the over concentration on the states of Florida, new Mexico and Nevada where the overwhelming majority of its business is done.

The move came on the heels of figures released late last week in the US which strongly suggest that the US housing industry’s headlong slump has slowed and possibly bottomed. There’s no sign of an upturn but there’s a distinctly better tone to the commentary from building companies.

The US Commerce Department said in a report that December housing starts unexpectedly climbed 4.5 per cent to a seasonally adjusted annual rate of 1.642 million units from November’s 1.572 million.

For all of 2006, starts totalled 1.8 million, down 13 per cent from 2005 and the biggest annual decline in 15 years.

Analysts cautioned that the December figure was probably influenced by the milder weather much of the northern US states have been experiencing which has allowed more building starts than normal.

And late this week sees more information on the state of the market with figures on the sales of new and existing homes.

The slump is being driven both by falling demand and by over supply.

Some analysts say that its a small positive that there are enough orders still in the system for builders to be able to take advantage of the milder weather and make a start on homes on their order books.

It’s something to be kept in mind as the Cemex offer continues to be well out of the money.

Rinker shares traded around $18.30 yesterday on the ASX, well above the value of the offer from Cemex.

Cemex is offering $US13 a share, or around $16.40 based on an exchange rate of just over 79 USc.

Most analysts reckon Cemex will have to lift the Australian dollar value to around the $20 mark if it’s to have a chance.

Rinker’s independent experts report put a range of $20.58 to $23.04 on RIN shares. Cemex has a lot left in its wallet and the seeming change in tone from the US housing industry will force it to add more to whatever price it is offering: that’s iof it wants to win.

Rinker is well placed to get value from any rebound and is making sure it is positioning itself to do so.

It’s an obvious strategy to continue running a company as if the bid isn’t there.

Rinker said the Walling company would be incorporated into Rinker’s existing Oregon business.

Rinker said Walling is a privately-owned group of companies, which was established in 1940 and is the second placed aggregates producer in Salem, with around 25 per cent of the local market.

Rinker’s US subsidiary, Rinker Materials, has an existing business in Portland, Oregon 80 km north of Salem, which was acquired in 2002.

Rinker said the construction outlook for the region was positive, with the housing slowdown expected to be offset by strong non-residential and infrastructure spending.

Rinker said in its statement that it had “invested around $US2 billion ($A2.54 billion) in over 50 acquisitions since 1998, together with around $US1 billion ($A1.27 billion) in the development of new quarries and operating plants and expansion”.

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Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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