In September 2004, Lorenzo Zambrano, the chairman and CEO of Mexican cement maker CEMEX, sat in his gleaming modern office in the IBM Tower in New York City, an office suite similar in look and feel to CEMEX’s international headquarters in Monterrey, Mexico. He was feeling both exhilarated and nervous. His successful company, widely admired in its region and a recipient of major international awards for sustainable development, had just offered $5.8 billion to acquire the largest producer of Ready Mix concrete in the world: UK headquartered RMC. If under-performing RMC, with sales of $7.9 billion in 2003, accepted the offer, CEMEX would more than double its business, which up to that point had been based primarily on the production and sales of cement. It would also for the first time be extending its presence deep into Europe and well into the Ready Mix concrete market segment, its most complicated acquisition yet.1 Having pursued an aggressive acquisition strategy since the late 1980s, the company had transformed itself from a regional firm into the third largest cement maker in the world with operations in more than 30 countries.2 Ever since Zambrano took CEMEX’s helm in 1985, the company had developed methodologies, infrastructure, human capabilities, and culture necessary to operate successfully on a global scale. But was that enough to integrate RMC smoothly into its worldwide operations and cement CEMEX’s reputation as a new global leader? Cement Industry Background
History credited the ancient Romans, builders of the Coliseum and the Parthenon, with making the world’s first cement-like substance from crushed rock and burnt lime.3 In modern times, workers set off explosives and bored into rock to blast limestone and clay from quarries. The boulders were broken up and then transported in dump trucks or by conveyor belt to a plant where crushing machines pulverized the rock into one to two inch chunks. Machines separated out raw materials, like limestone or clay for use in manufacturing specific types of cement after processing in huge rotary kilns where at a temperature of 1,400 degrees C° they were burned into little dark gray nodes three to four centimeters in diameter known as clinker. Machines ground clinker into a fine gray powder to make cement, then gypsum was added to lengthen the cement’s setting time. The cement went to a storage silo before being sent to yet another plant to be packaged for sale in sacks or bulk.4 Transported mainly by car, train, boat, or truck, cement was then combined with water and aggregates (crushed rock, shale, sand or gravel), setting off a chemical reaction to make the ubiquitous rocklike building material known as concrete.
Cement makers traditionally put production plants near local markets due to relatively high transportation costs; production capacity corresponds to local market size. This situation started changing in the second half of the 20th century when water transport became more practical and technology improved, enabling larger facilities to also serve markets further afield.5 Cement markets, worth $87 billion worldwide in 2004,6 ebbed and flowed with the highly cyclical construction sector, albeit less so in developing countries, where retail customers purchased bagged cement to build their own homes. In developed country markets, companies sold cement and aggregates primarily in bulk in the form of Ready Mix concrete – not-yet-solidified concrete produced to customer specification and transported in cement–mixing trucks to the construction site.7 The market for Ready Mix concrete was picking up in rapidly growing developing countries like China, and was expected to be the fastest growing end-use market segment through 2010.8 That said, sales of bagged cement yielded fatter profit margins than bulk sales of Ready Mix concrete.9 Once dominated by many national or regional players, the cement industry started consolidating by the 1990s as companies sought to cut...
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