Multinational Finance Study Case

PT Semen Gresik

International Acquisition of Cemex S.A.

de C.V.

Presented by Group IV
Francisca Arini
Muhammad Prasetio
Tony Ferdyantara

Background
Cementos Mexicanos (CEMEX) from Mexico considers international
expansion in AsiaCase
Asia Markets expansion in order to turn Cemex into a global player
The first Asia market entry was in 1997 Philippines (30% stake in
Rizal Cement)
New target: Indonesian market The timing was inline with the
Indonesian privatization
Indonesian economy was open to outside investors and market
forces as part of promises to IMF (in exchange of economic &
financial assistance)
CEMEX appointed Goldman Sachs to find suitable cement
company in Indonesia

CEMEX S.A. de C.V

company profile

Founded in 1906
Largest cement manufacturer in the
Americas
3rd largest in the world (behind
Holderbank & Lafarge)
Based in Monterey, Mexico
Operated in 22 countries
High operating margins
Surviving Mexico economic crisis

CEMEX S.A. de C.V

corporate strategy

Cemexs corporate strategy

Cemex was also able to maintain its operating and EBITDA

margin over the tumultuous 1990s. The source of Cemex
efficiencies are combination of

CEMEX S.A. de C.V

consolidated financial result, December 31,

in millions pesos
1993

Net Sales

1994

1995

1996

1997

25,759

27,687

33,924

35,540

38,464

Operating Income

6,269

7,431

8,100

8,482

9,088

Majority Net
Income

4,637

4,951

10,045

10,319

7,725

Earning per Share

(EPS)

4.39

4.60

7.81

7.95

6.01

Operating Margin
(%)

24.4

26.8

23.9

23.8

23.6

8,120

9,471

10,786

11,483

12,116

31.6

34.2

31.8

32.3

31.5

EBITDA
EBITDA margin (%)

CEMEX S.A. de C.V

facts on ASIA expansion

CEMEX had little experience in Asia
CEMEXs first direct operating activities was
in Philipine
Cemex make acquisition of 30% stake in Rizal
Cement (Philipine) in Sept 1997 for US$ 100
million
In early 1998, CEMEX directed Goldman
Sachs to find cement company in Indonesia
to be acquired for strategic stake
Asian economic crisis resulted many firms
throughout Far East relatively cheap
Is it the right time to buy in Asia?

Semen Gresik

company profile
Began producing in 1957
Exploiting large and accessible limestone
deposit in East Java
First government cement producer in Indonesia
to go public, issuing 35% of its share in July
1991
Become the largest Indonesian cement
producer in 1995, purchased Semen Padang &
Semen Tonasa for a total of US$ 476 million
Three companies still operated separately and
maintain independent administrative structure

Key Issues
Evaluation of Investment opportunities aboard to exploit
existing competitive advantage.
Application of valuation techniques as the basic of
International acquisitions decision.
Align an international expansion strategy with local
conditions in targeted region (e.g privatization of
emerging Asian economies).
Concern on the complexity of cross border business
expansion.

Cement Industry in Indonesia

an overview

Cements are commodity with high transportation cost

Cements are regionally segmented markets
Most important market in Indonesia is Java
Jakarta-dominated by Indocement, West Java-dominated by Semen Cibinong and East Java dominated by
Semen Gresik
All producers were expected to se 1998 annual sales to fall by 40%
The prospect in 1998 tend to be not clear
Indonesian government deregulated cement market by abolishing the local guideline price system price (HPS)
Price wars was expected to continue through the year of 2002

Bagged Cement Price and Cash

Cost
Country

across
Asia,
asMargin
of June
1998
Cash
Cost
Gross
Margin

Ex Factory
Price
(US$/ tonne)

(US$/ tonne)

(US$/ tonne)

(US$/ tonne)

Pakistan

55

29

26

47%

Malaysia

40

26

14

35%

India

46

27

19

41%

Philipine

39

23

16

41%

Korea

39

28

11

28%

Taiwan

54

30

24

44%

Thailand

38

20

18

47%

Indonesia

16

10

38%

Average

41

24

17

40%

Valuation
Industry specific valuation
1.Compare market value with some value derived of the
companys financial statements.
2.Compare to precedent transaction ratios or comparable
firm ratios
Discounted Cash Flow (DCF) Method :
Free cash flows discounted with weighted average cost of
capital(WACC) to obtain the Equity Value.

Valuation in Cement Industry

Valuation in Cement Industry

Valuation
Market Cap
(US$
million)

EV/
Capacity

EV/ EBITDA

Price/ FCF

Price/Earnin
gs

Indocement

957.9

39

12.6

5.8

(27.9)

Semen
Gresik

461.9

53

8.5

11.4

56

49.5

65

5.5

0.5

(1.1)

INDONESIA
avrg

52

8.9

9.2

9.0

THAILAND
averg

146

10.7

4.3

(2.2)

MALAYSIA
avrg

55

11.5

8.4

(26.9)

PHILIPINES

58

4.1

4.2

5.5

Semen
Cibinong

Valuation

WACC and Cost of Equity

 Discounted Cash
Flow Valuation

Valuation

Valuatio
n

Discounted Cash
Flow Valuation

Bidding on Semen Gresik

Cemex win the bid with combination offer :
1.A bid of US$ 1.38/share for 35% of SGs shares held by
Indonesian govt (current share price : US$ 0.63/share , Ex rate Rp
9,150. On September 30, 1999 Cemex only own 25.5%)
2.Intention to add 16% from open market, in total will hold 51%
shares.
3.Government holds the right to sell (put option) Cemex its 51%
over 3 years price of $1.38/ share + 8.2% per annum, Cemex
would hold 71% of SG and full control.
4.Additional contribution from Cemex to SG and Indonesian govt
approximately US$ 179 million

Depressing Endings
Political side
- Regional autonomy law was applied

Local administrations aiming to control industries located in their region

The ownership of Semen Padang was taken over by the West Sumatra
government in late 2001, even the legality was disputed by the central
government

- Fear of separatist revolted in West Sumatra

- Public concern regarding the fact that 57% of Indonesian cement
production already owned by foreign investors.
Internal denial
1.Rumour of employees lay off (nearly 1500 of Semen Padangs
operations)
2.Rebellion of Semen Padangs management in 2002

Depressing Endings
In December 2003, Cemex desire to revoke the 1998s
agreement and request assistance from International
Center of Settlement of Investment Disputes (ICSID) to
act as an arbiter. They are also demand to be awarded
substantial damages.
On Juli 27, 2006 Cemex sold all of their shares to Blue
Valley Holdings Pte Ltd.

Recommendations
Three main points to be consider in international acquisition
decision
1.Target identification and evaluation
2.Project execution
3.Post merger integration
Apply multiples and Discounted Cash Flow to value the target
FCF should be generated from the most reliable discount factor
to measure the risk.
Cross border expansion will most probably bring up the political
disruptions or intervention, restrictions and regulations.
Qualitative and quantitative risks should be consider carefully

End of Presentation
Thanks for your attention