US Takeover Suggests A Higher Rinker Bid Is Required

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By Chris Shaw

The pressure on Cemex to increase its takeover offer for Rinker (RIN) appears set to increase following the move in the US by Vulcan Materials to acquire Florida Rock for US$67 per share.

Brokers have reacted to news of the bid by pointing out it confirms their views the Cemex bid is too low, as while Florida Rock and Rinker have somewhat similar operations the Vulcan bid is being pitched at a significantly higher multiple.

Deutsche Bank notes the application of the same P/E for Rinker as the Vulcan takeover for Florida Rock implies a share price of $23.61, an assessment shared by Macquarie who suggests a comparative price would be in the range of $23.00-$24.00. The independent expert’s response to the Cemex bid included a valuation range for Rinker of $20.58-$23.04.

GSJB Were looks at it from the point of view of respective P/E multiples but comes to a similar conclusion, noting the Florida Rock deal implies a multiple of about 19.1x earnings compared to a multiple of about 17.5x for Rinker.

Either way it appears Cemex will have to lift its bid to be successful, particularly as timing is also of importance given on Deutsche’s forecasts earnings per share in FY08 will be relatively flat at US86c compared to US85c this year, but they are expected to jump to US100c in FY09.

Rinker shares have done little in trading today, as at 11.10am the stock was down 10c at $19.38. The FNArena database shows the stock being rated as Buy twice and Hold five times, with an average target of $19.40.

Over to you, Cemex.

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