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November 28, 2006 When 11 times projected EBITDA isn't enough...
Early this morning, Rinker (NYSE: RIN) formally rejected a $12 billion Cemex (NYSE: CX) bid. Despite being the largest proposed take over from our southern neighbor, it
wasn't enough. The offer works out to be 11 times current EBITDA and 9 times
next year's projected EBITDA of $1.4 billion. Management stated that they
believe it is worth nearly 40% more or (let's do the math together, 11
times 1.4 equals...) 15 times EBITDA! Holy cow! Sure the cyclical industry
is at a trough (or so some say) but even at last year's EBITDA, the offer
exceeds 8 times. Management's justification? A management report
recognized that the premium was high, though justified as Rinker was
strategically important and a superior asset relative to recent acquisition
targets in the sector. And who says private equity transactions have not
influenced the public markets?
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