Cemex Case

Topics: Free cash flow, Operating cash flow, Cash flow Pages: 5 (1211 words) Published: March 16, 2013
Cemex
Key points summary

| |Cemex was originally founded in 1906 as Cementos Hidalgo and became Cemex (Cementos Mexicanos) after a merger | |Case Summary |with Cementos Portland Monterrey in 1931. Throughout the 1960’s, 70’s, and 80’s, Cemex expanded throughout | | |Mexico to gain a 65% share of the domestic market by the end of the 1980’s. Under the leadership of CEO Lorenzo | | |Zambrano, Cemex was able to focus on its core business and extract the most out of its domestic market. The | | |company began by liquidating its non-cement holdings to improve the core business of selling cement. Cemex also | | |implemented some ingenious marketing strategies in Mexico to grow their market share. They created contests | | |with weekly winnings of materials to build a home and classes to teach them how to do so. They also implemented| | |steps to help Mexicans working in the US purchase materials for their family back in Mexico. | | |But success in Mexico was not all that it took to make Cemex one of the leading cement producers in the world. | | |Throughout the 1990’s Cemex purchased cement companies globally including in countries such as Spain, Venezuela,| | |Dominican Republic, Colombia, Panama, Philippines, Indonesia, Chile, Haiti, and Egypt. The company took a number| | |of steps to ensure that these acquisitions were successful beginning with utilization of the extensive | | |information technology network they had built up in Mexico. This IT system drastically improved the logistics | | |and efficiency of the company allowing Cemex to centralize the decentralized acquisitions. Cemex also followed a| | |three item checklist when purchasing a company: the return on investment must be higher than the cost of | | |capital, the purchase must maintain a healthy balance sheet, and Cemex must be able to increase the value of the| | |company acquired. In 2000 Cemex moved into the US market with the purchase of Southdown for $2.8 billion. In | | |2005 the acquisitions continued to get bigger with the purchase of UK based RMX for $6.5 billion. The largest | | |and most ill fated buyout was Australian Rinker in 2007 for $15.3 billion. By 2008, the company was operating | | |in 50 countries. | | |With the recent large acquisitions Cemex has made, the company has accumulated a substantial amount of debt. It | | |was soon estimated that the purchase of Rinker was overvalued substantially. Then in 2008 the economies of | | |Cemex’s major markets (United States, United Kingdom, Spain, and Mexico) fell into recession causing a | | |significant drop in sales. Due to the recession there was a major credit freeze by the banks of the world. At | | |the time, Cemex had a very low free cash flow with billions of dollars of impending debt. | | |To begin to deal with the cash flow crisis Cemex began liquidating some of its underperforming assets. The | | |company shut down its Davenport, California plant and sold its Canary Island, Hungary, and Austria units. Talks | |...
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