FYI | Jun 14 2007
Your editor has found a way to make some easy profits before the weekend. It concerns a clause in Cemex’s bid for former local share market darling Rinker (RIN). On current metrics any retail investor can make circa 3.5%, before transaction costs, on a very short term investment period and for investments of up to $38,000.
You all know the rule by now: if it sounds too good to be true, it probably is. Alas, it would seem that the only way this opportunity is going to slip out of your hands is because too many of your fellow investors will have jumped on it before you did, and Rinker’s share price has appreciated too much by the time you consider joining in.
But let’s not jump ahead and draw negative conclusions we don’t know for certain yet. Let’s start with the facts first.
On Friday next week, 7 pm Sydney time, the Rinker takeover saga will finally come to an end.
It has been a long and arduous road for the Mexicans at Cemex to secure ownership of the US building materials operations they so desired, but last week -finally!- they had received acceptances in excess of 50% of Rinker’s outstanding voting shares, giving them control over the company.
Next week a formal handover of daily management will take place with all Rinker directors retiring in order to be replaced by Cemex nominees. Don’t believe Cemex press releases when they say the board is looking forward to integrate Rinker operations into the global group as Cemex’s flexibility will continue to be seriously constrained by the fact it will have to deal with minority shareholders still, and thus with a separate public listing for Rinker.
Relief is probably a better placed term to describe the overall mood at Cemex because this has been one hard nut to crack.
How many shares will remain in the public domain is still an open question. Cemex only secured about 55% of Rinker’s total capital but the next few days should bring in some extra acceptances for its US$15.85 offer.
There’s still a theoretical chance every shareholder who hasn’t done so yet will send in his shares before the deadline, but what are the odds? Remember that acceptances have been dripping in so slowly over the past months that Cemex decided to simply drop the condition of 90% acceptances in order to secure control over the company, as well as the right to deduct from the offer the interim dividend the company paid its shareholders in December.
The company is correct in pointing out that all shareholders who won’t hand in their shares will have to be content with the position of a minority shareholder in a company that still faces a highly uncertain short term outlook with no chance at all for a private equity approach.
Admittedly, with Rinker management all but history and the US housing market possibly in the doldrums for a few years still, it’s easy to question what these shareholders are holding out for – a recovery in US housing over the longer term?
But wait! – Cemex’s bid still includes a twist for the final few days of the offer, making it not inconceivable that the level of acceptances will surge strongly between now and next week Friday. Who knows, if the level of ownership increases a lot between now and the current deadline, Cemex management may even decide to extend its offer one more time, as it is allowed to do under the Corporations Act.
Shareholders should not expect a higher offer though, as the US$15.85 bid for each Rinker share has been declared “final” and the company therefore cannot further raise the offer to try to boost the level of ownership.
So what’s the twist?
Cemex’s offer includes a sweetener in that the company has agreed to pay $19.50 for the first 2,000 shares of each investor. The press release announcing the offer explicitly stated these shares had to be owned at the time of the offer announcement already, but I have received confirmation this morning from the Rinker shareholder information desk that the standard forms for acceptances of the offer don’t include such a requirement.
Rinker shares closed at $18.76 yesterday.
In other words, anyone can buy up to 2000 shares of Rinker on the market today and hand them in at Cemex and, dependent on the purchase price and costs, and make a relatively easy and still handy profit in a few days only.
It can be expected that more people know of this by now, the information desk was talking about lots of enquiries about this clause specifically this morning, and that might mean limited spaces available to the Cemex-Rinker party only.
Anyone willing to jump on the opportunity: good luck!
Till next week!
Your happy to see you all happy editor,
Rudi Filapek-Vandyck
(as always supported by the Fab Three: Greg, Chris and Terry)