FALL 2019

MGT607- Strategic Management

PROJECT REPORT

“PostMerger Integration Strategies”

The Cemex Way

Instructor: Dr. Andreas Petasis

SUBMITTED BY:
Ijaz Hassan (20191142)
Singh Harpreet (20192101)
 Singh Jaswinder (20192286)
CEMEX is a global building materials company that provides high quality products and reliable
services. CEMEX has a rich history of improving the wellbeing of those it serves through
innovative building solutions, efficiency advancements, and efforts to promote a sustainable
future.

History

CEMEX is a global building materials company founded in Mexico in 1920.This company is

located in over 50 countries, and maintains trade relations with approximately 100 nations, while
providing high quality products and reliable service to customers and Communities. With annual
sales of approximately 14.98 billion USD, and 44,000 employees located worldwide, this
company is considered a global industry leader, particularly in cement manufacturing and global
supplying of ready-mix concrete.
As part of the corporate statement, CEMEX places high value on flexibility, creativity,
sustainability, innovation, and efficiency .In 1976, the company went public on the Mexican
stock exchange, and that same year, became the largest cement producer in Mexico with the
purchase of three plants from Cementos Guadalajara. In 1982, the company made significant
progress in overseas markets, doubling its exports. Further acquisitions of Mexican cement
companies were made in 1987 and 1989, making CEMEX one of the ten largest cement
companies in the world. 1992.
Much of this growth was achieved through acquisitions of other companies within the industry.
The results of the internationalization process of this Mexican company shows the geographic
distribution of sales in 2013, with the largest percentage coming from Northern Europe at 27%.
CEMEX offers a variety of products, however almost half of all sales are from cement, and they
are the world’s third largest cement producer by production. Most of the company’s cement is
bagged, branded, and distributed at a point near the site of its use.

Mission
CEMEX’S mission is to serve the global building needs of its customers, and build value for its
stakeholders by becoming the world’s most efficient and profitable cement company.
Values

Mergers and Acquisitions

CEMEX’s strategic capabilities have long been dependent on its ability to perform at a
higher level and in a more differentiated way. It focuses on not only identifying but also
developing new capabilities that made possible to respond to the changing demands of customers
while at the same time being able to beat most of the competitive threats. Before making any
acquisitions, the company enjoyed a number of competencies among which were the strong
operational capabilities that were based on engineering and IT as well as a culture of
transparency. It later also mastered the art of acquisition as well as integration that have seen it
grow to be an international leader. One of the major steps towards internationalization was the
establishment of an efficient communication system for its 11 factories, called CEMEXNET in
Mexico.
This was a significant step that helped integrate all the operations of the company in
Mexico as the communication was more coordinated and the managers could easily input
manufacturing data related, to inventory, production, administration, sales and delivery (Hoyt &
Lee 2005, p. 351). This also made it possible for the then CEO Zambrano to inspect the
operations of the company in Mexico virtually. After the company laying groundwork for
internationalization, its next move was stepping out. It acquired Mexican’s Tolteca that enabled it
to be the second largest cement producer in Mexico while one of the top biggest producers of
cement in the whole world.
The company made its first international expansion move in 1992 after acquiring a
majority stake in two cement production companies, Valenciana and Sanson in Spain. This was
to cater for the lost market share at home by Holcin. It also considered the fact that Spain was an
investment grade nation since it had joined the European Monetary Union.
Mergers and Acquisitions Benefit

 Efficient way to jump into the industry

 Already possessed the material infrastructure such as buildings needed to start
 Expertise with experience on job.
 Minimum the potential risk of starting a new business
 Could minimize the time and effort of building from nothing.

Post-Acquisition problem
The CEMEX fail to achieve these financial targets due to significant fall in cement demand in its
major market including the US in fiscal 2008 and 2009 and the huge debt burden post Rinker’s
acquisition.
 Fall in cement demand
In late 2007, the subprime crisis in the US resulted in a significant slowdown in the growth of
residential mortgage markets in the US. The prices in the real-estate sector started falling sharply.
CEMEX was one of the major players in the building materials industry in the US which saw its
net sales and sales volumes falling sharply in fiscal 2007 and 2008. The crisis which originated
in US spread to other major world economies and resulted in a global economic slowdown in
2008.
 Debt Burden
CEMEX had financed Ricker’s acquisition by rising short-term and long-term debts form banks.
The debt instruments involved had maturities starting form 2009 till 2011.

Post-Merger Integration
Its companies in Spain flourished at a faster rate as it employed it Post Merger Integration (PMI)
and it was able to learn from Spain which enhanced its capabilities directly. The company after
this acquisition accelerated its internationalization process. For instance, in the mid-1990s it
made acquisitions in Colombia, Venezuela and Caribbean, and Indonesia and the Philippines in
the late 1990s. The company was also able to make changes to its PMI process since it realized it
I had to make some effort to learn some of the best practices from its acquired companies in
other countries and only implement them when appropriate.

CEMEX internal benchmarking system that was driven by five forces:

 Efficiently manage the global knowledge base
 identify and disseminate the best practices
 standardize business process
 implement key information and internet-based technologies
 foster innovation

This made the PMI process different acquired companies could only retain 20 percent of their
practices while the 80 percent was cataloged and stored in a central database by CEMEX teams.
The company formed teams every time it made an acquisition. These were experts in production,
finance, logistics and other major functions and were responsible teaching managers of newly
acquired firms in other countries (Whitaker & Catalano 2001). They also were responsible for
identifying the best practices to retain in those firms and the ones to get rid of. CEMEX stepped
up its game through the redefinition of its large markets into regions according to their growth
rates. The company became North America’s largest producer of cement after the acquisition of
the Texas-based Southdown. After a shift of performance measurement from the emphasis on
margins to return on investment of its products the company identified a new opportunity as
ready-mix concrete was then more attractive than cement. It led the company to make its first
diversified acquisition after acquiring a UK-based ready-mix concrete international leader, RMC.
The most phenomenal acquisitions of CEMEX happened in 2007 when it acquired Rinker saw
the company become one of the world’s largest cement suppliers.

CEMEX Integration Practice

However, in mid-2007, CEMEX's acquisition of Australia based Rinker group landed the
company in a financial debt trap. CEMEX paid US$ 14.2 billion to acquire Rinker and estimated
that it would be able to generate enough cash flows from Rinker's operations to pay off the
additional debt obligations that it incurred due to the acquisition.
Acquiring Rinker strengthened the operations of CEMEX in the US. However, since late 2007,
the real estate market in the US faced a slowdown. The prices in real estate markets started
falling, unemployment increased and several financial institutions went bankrupt. These events
led to poor demand for building materials and tighter credit availability from banks. CEMEX
could not generate enough cash flows in 2008 and 2009 because of fall in sales. At the same
time, it had to refinance its short term debt at several instances leading to increase in cost of
financing. Rating agencies downgraded CEMEX's credit rating leading to increase in cost of
capital. CEMEX had to sell some of its assets, some acquired through Rinker's acquisition to
raise funds and pay off debts. Though selling certain operations resulted in lower cash flows than
estimated, CEMEX remained bullish on the long term prospects of the US economy and was
confident that it would bounce back strongly.

The Acquisition Integration Process

CEMEX had learnt in the course of its business that implementing the technical and management
standards it followed in its existing plants was not sufficient to ensure the smooth integration of
and acquired company. The company realized that it had to learn the process already
implemented in the acquired company, compare it with the corresponding processes it followed ,
and retain the better of the two. CEMEX then made efforts to implement the best practices
learned form the acquired company across its worldwide operations. This acquisition integration
process was later named as the ‘CEMEX way.’
The CEMEX way was an internal benchmarking process which resulted in a core set of best
business across the globe. It was driven by five guidelines developed by the company
After acquiring a target company CEMEX deployed multinational standardization teams
composing experts form various functional area like Finance HR, and IT. The work was overseen
by and executive at the vice president level.

Conclusion
The multi nationalization of CEMEX is the result of a long term strategy. While it is true that
international expansion happens from the 1990s, via a strategy of international mergers and
acquisitions, this process would have not been possible without that long path that runs the
company, marked by learning and accumulation of technological and organization capabilities,
which covers at least seventy years before the global expansion of the business of this great
corporate specialized in the cement sector. At the basic of the global expansion of the business of
this great corporate specialized in the cement sector. At the basic of the acquisition of those
capabilities (PEC) is the repeated execution of project along CEMEX history. These capabilities
are the product of learning process, and their recurrent deployment constitutes the main force
driving firm’s growth in the late industrializing countries. Though PEC late industrializing
enlarges their potential to unpack technology imports, and gradually learn and increase their
knowledge to move from simple to advanced capability levels, both technological and
organizational.
Mergers and acquisitions have been increasingly utilized by firms from both, early and late
industrialized countries, as a mechanism to expand their operation to international markets. We
have argued that M&A are used by other multinational cement producers for their international
expansion. However, late industrialization conditioned CEMEX growth trajectory. It was a
learner firm that was expanded gradually not by using proprietary technology, but by successful
process of accumulation of capabilities.
CEMEX has accumulated technological and organizational capabilities which are deployed in its
growth participating personal and operational area such as those form market planning ,finance
and technical areas. In the post-acquisition process it extends, resumes or redefine its
organizational culture, within the acquired company , establishing mechanism for sharing
knowledge and integrating capabilities. During the process of integration of capabilities, routines
and standardized process have been created such as the rationalization of staff, the introduction
of operational practices and technological modernization. And modern practices in the
management of the incorporated company.
The multi nationalization of CEMEX has involved the confrontation of different constraints of
the markets where the companies or plants are acquired, or in which it has partnered with local
businesses. In this multi-scenario, CEMEX had to develop and implement effective mechanisms
for the integration of the operations located in different parts of the world , which includes
mechanisms to share knowledge between the various subsidiaries that make up the organization,
for an effective transfer and adoption of technology, and for the standardization of operations,
and the construction of shared culture.
Its trajectory of growth nationwide in Mexico helped CEMEX not only to expand, and learn and
build capabilities for the management of the plants and companies acquired, but to generate
industrial and technological knowledge. The trajectory of growth of CEMEX in its multinational
phase is based
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