Swiss cement company Holcim announced yesterday it will buy Cemex Australia for A$2.02 billion ($1.61 million) and invest Rmb1.6 billion ($234 million) in its Chinese affiliate Huaxin Cement, financing the combined outlay with a SFr2 billion ($1.8 billion) rights issue.
Cemex Australia is a unit of Mexico cement producer Cemex, which has operations in more than 50 countries around the world. It has a presence across Australia in aggregates, ready-mix concrete and concrete products with a total of 348 facilities with a strong position in Queensland, New South Wales and Victoria, as well as in Tasmania and in the Western Australian mining belt. It owns 83 aggregate quarries with reserves of aggregates estimated at 1 billion tonnes, plus 249 ready-mix concrete plants and 16 pipe and concrete product plants.
Zurich-headquartered Holcim has struck the deal at a firm value of A$2.02 billion, which translates into an Ebitda multiple of 6.6 times, based on expected 2009 earnings. Based on trailing 2008 earnings, Holcim is paying a multiple of 6.45 times. In 2008, Cemex Australia had sales of approximately A$1.86 billion.
As part of the deal, Holcim will also acquire Cemex Australia's 25% ownership in Cement Australia, the country's largest cement producer, which has an annual production capacity of 5.1 million tonnes. Holcim already has a 50% shareholding in Cement Australia, which operates four cement plants and one grinding plant as well as several terminals and distribution centres along the east coast of Australia and in Tasmania. In 2008, Cement Australia had sales of A$995 million on which it earned an Ebitda of A$196 million.
The deal is subject to due diligence and regulatory approvals in Australia. It is expected to close within six months.
Cemex was advised on the sale of its Australian business by BBVA, BNP Paribas, Citi, HSBC, Banco Santander and Royal Bank of Scotland.
Cemex acquired Australia's Rinker Group through a hostile takeover in October 2006, on which the Mexican firm was advised by Citi and J.P. Morgan. Cemex initially offered $12.8 billion for Rinker but over the course of the next six months it increased its offer by 20% to $15.3 billion to win over Rinker shareholders. The deal valued the Australian construction materials company, which was advised by UBS, at 10.4 times Ebitda based on earnings for calendar 2006. Cemex then renamed the company Cemex Australia.
In March 2008 Cemex said it was capturing cost synergies of around $400 million annually from the integration of Rinker, up from an estimate of $130 million when it launched the takeover.
Cemex said in a written statement yesterday that the sale was part of a strategy to reduce debt, rationalise capital expenditure and save $900 million of costs annually.
On a call to discuss the deal yesterday Holcim chief executive officer Markus Akermann deemed the buy an opportunistic one. Analysts have commented that Holcim is benefitting from the opportunity to acquire assets at rock-bottom prices as its competitors struggle to recapitalise their balance sheets.
Holcim will also participate in the Rmb4 billion private placement of Huaxin Cement (China). Huaxin is the fourth largest cement producer in China. It intends to use the funds to build two cement plants in new markets and expand capacities in existing markets, increasing its cement capacity to 55 million tonnes per annum from 38 million tonnes currently.
In 1999, Holcim acquired a 23.4% stake in Huaxin. Holcim has increased its stake over the last decade and is currently the largest shareholder in Huaxin with a stake of 39.9%. To maintain its stake at the same level, Holcim will shell out Rmb1.6 billion.
Holcim will finance both the Australia and China deals through a fully underwritten rights issue that will raise SFr2 billion. Fellow Swiss firm UBS is underwriting the rights issue and acting as global coordinator and sole bookrunner on behalf of a syndicate of banks. The terms of the rights issue are yet to be announced and shareholder approval is pending.