CEMEX Case Study

UV6381
Rev. Jun. 16, 2014
TAKING A MEXICAN COMPANY GLOBAL—THE CEMEX WAY
Ten years from now, I want CEMEX to be more global with a diversified flow
from different countries and not to be so concentrated in North America as we are
now. I want to remain independent at the top of the world.1
—Lorenzo Zambrano
With another conference call came another barrage of questions for Lorenzo Zambrano
about his bid to buy the Australia-based Rinker Group in October 2006. Zambrano was CEO of
CEMEX, a major global cement producer headquartered in Mexico. Until this point, CEMEX
had a long-standing habit of buying businesses in emerging markets; this acquisition would be a
departure from that strategy. The financial pages of newspapers around the globe were filled
with reports questioning the offer. Yet with CEMEX’s impressive history as an industry
consolidator, there was also the odd commentator asking what all the ruckus was about. As he
listened to the Deutsche Bank analyst’s last two questions to his CFO, Zambrano began to grow
tired of the volley.2
Analyst: “I’m just wondering if when you say ‘an all-debt-financed deal,’ whether or
not that includes potential issuance of preferred equity similar to the
financing I think was used for Southdown…Is it safe to conclude that the
transaction will not generate the investment-grade credit rating that CEMEX
achieves?”
Zambrano: “Come on guys. You’ve heard us before and you’ve seen us working before.
It’s only, what, less than two years since we acquired RMC and we gained
our financial flexibility very, very fast—faster than many expected. And
now we are on the path of a substantial acquisition that we are very
1
John Barham, “An Intercontinental Mix,” Latin Finance (April 1, 2002): 24.
2
Factiva, Voxant fair disclosure wire, “CEMEX Offers to Acquire Rinker for US$12.8 Billion,” final
conference call, October 27, 2006 (accessed May 23, 2011).
This case was prepared by Gerry Yemen, Senior Researcher; S. Venkataraman, Professor of Business
Administration; and Yiorgos Allayannis, Professor of Business Administration. Data were gathered from public
sources. It was written as a basis for class discussion rather than to illustrate effective or ineffective handling of an
administrative situation. Copyright  2011 by the University of Virginia Darden School Foundation, Charlottesville,
VA. All rights reserved. To order copies, send an e-mail to sales@dardenbusinesspublishing.com. No part of this
publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by
any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of the Darden
School Foundation.
This document is authorized for use only in Pedro Carvalho's 2204-Mergers and Acquisitions T3 S2 17/18 course at Universidade Nova de Lisboa (UNL), from January 2018 to April 2018.
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enthusiastic about because of the strategic tip for CEMEX, and the
synergies, and the collegial finance of that company, and the geographies,
the segment for where we want to be, the areas in the United States where
we want to be. So we will leverage very, very quickly. Also remember that I
said, and what I say is really a promise, that we will get to 2.7 times debt to
EBITDA within 24 months of closing. We do deliver on our promises.”
If the deal went through, it would be the single largest acquisition in CEMEX’s history,
and it would be among its few forays into a developed market other than in the neighboring
United States. The company had grown exponentially and successfully. Why would this effort be
any different? Was the acquisition a good idea or not? And, if it was, how would Zambrano and
his leadership team convince others of that?
Industry: Need a Building? Just Add Water!
First things first: cement and concrete are not the same thing. There is no such thing as a
cement mixer, and you can’t bang your head against a cement wall. Indeed, cement is the basic
ingredient in concrete, which means there is such a thing as a concrete mixer and you can bang
your head against a concrete wall.
Who would have ever believed that cement actually came out of a kitchen in England?
And no, it wasn’t a failed cooking experiment. In truth, Joseph Aspdin heated limestone and clay
together in a pot until it formed a powder that he called Portland cement—because it looked like
a stone on the Isle of Portland. Such was the beginning of the cement industry, which grew into a
multi-billion-dollar global industry. By 2006, the industry was flourishing, and China had
become the largest cement producer, followed by India, the United States, Japan, and the
Republic of Korea.3
The cement manufacturing process began with bringing in, or mining from a limestone
quarry, raw material that contained lime (most commonly limestone, shell, chalk, or carbonate-
free slag, which was a byproduct of steel manufacturing), silica (from sand or the fly ash from
coal combustion), and iron oxide (from iron ore or iron). That material was crushed and then
milled into a powder and mixed well with water (called wet processing) or compressed air
(called dry processing). The use of wet processing had fallen sharply since the 1980s, and for the
most part, newer factories favored the dry kilns, which were more energy efficient than the wet.
The powder was heated in a cement kiln to incredibly high temperatures, somewhere between
2,600°F and 3,000°F (1,430°C to 1,650°C). At some point in the heating process, the material
melded into pellets, called clinkers. On average, 1.6 tons of dry raw material was required to
produce one ton of cement clinker. Clinkers were cooled off and gypsum was added (calcium
sulfate), although cement quality could be changed by adding ingredients other than gypsum.
3
CEMBUREAU, “Activity Report 2006,” http://www.cembureau.be/sites/default/files/documents/
Activity_Report_2006.pdf (accessed Jul. 26, 2011), 2.
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That mixture was then ground into a fine powder that looked like flour and set like superglue.
Portland and composite Portland were the two major types of cement, and they offered three
major strength categories: ordinary (class 32.5, which was the minimal strength in newtons per
square millimeter after 28 days), high (class 42.5), and very high (52.5). At least one cement
factory could be found in almost every country in the world.4
Once produced, cement could then be mixed with water and something coarse, such as
sand or gravel, to create a batch of concrete—a product that had built and sheltered human
civilization for years (see Exhibit 1 for photos). Concrete came in two different forms: one that
was mixed on-site and frequently sold in bags; and another, called ready-mix concrete, which
arrived directly from the plant in huge concrete-mixer trucks.
Competition by Region
By 2006, the big players in the cement industry had created some pretty intense
competition that sometimes played out locally and other times globally (see the Appendix for
more market information). Based on capacity, the big four included Lafarge (France), Holcim
(Switzerland), CEMEX (Mexico), and HeidelbergCement (Germany). (See Exhibit 2 for
capacity share by country.)
Only six years younger than CEMEX, Holcim was located in Jona, Switzerland, and was
the brawny leader of the pack in capacity production. Not far behind was Lafarge, which was
headquartered in Paris and had been around a long time—founded only nine years after Aspdin
patented his Portland cement discovery. Lafarge acquired its ranking when it bought Blue Circle
Industries in 2001. At the time, the purchase put Lafarge at number one in terms of capacity.
CEMEX held the number-three spot and, when compared with Holcim and Lafarge, produced a
higher percentage of ready-mix cement (a lower-margin business). (See Exhibit 3 for a
comparison of data.) HeidelbergCement ranked fourth in the global industry, and it too was a
mature business—it was started in 1873 in Heidelberg, Germany, and went public in 1889.
During World War II, most of the firm’s plants sustained severe bomb damage and the company
was placed under American military command in 1945 for a couple of years. After that, there
was no turning back as HeidelbergCement gained a broad international presence and influence
within the industry.
CEMEX Company History: Pouring It On
CEMEX made cement. A lot of cement. What started out in 1906 as a small cement-
producing factory called Cementos Hidalgo in a Mexican city close to the U.S. border ended up
being one of the top three global companies in the industry.
4
Hendrik G. van Oss, U.S. Geological Survey, Background Facts and Issues Concerning Cement and Cement
Data, http://pubs.usgs.gov/of/2005/1152/2005-1152.pdf (accessed Jun. 1, 2011), 5.
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After having been shut down during the Mexican Revolution in 1912 for seven years,
Cementos Hidalgo reopened, but not to full capacity. One year later, Lorenzo Zambrano opened
a plant called Cementos Portland Monterrey in Monterrey, Mexico. By 1921, hard times had
eased, and the Hidalgo factory was finally back to operating at full tilt, as was the Monterrey
plant. Ten years later, Cementos Hidalgo and Cementos Portland Monterrey merged to become
Cementos Mexicanos S.A.—or, more commonly, CEMEX.
Within a 50-year period, the company’s annual production capacity had grown to sell
98.2 million tons of gray and white cements. It seemed as though the more cement CEMEX
produced, the more demand there was for the product. Seeking to grow, CEMEX made its first
acquisition and purchased Cementos Maya in Mérida, Mexico, in 1966 (see Exhibit 4 for a map
of Mexico). The firm continued to buy other factories in different geographic locations around
Mexico, updating equipment and adding new kilns along the way. Within 10 years, CEMEX had
become the country’s market leader, had issued an IPO, and had begun trading on the Mexican
stock exchange (Bolsa Mexicana de Valores [BVM]). In 1985, CEMEX exceeded all prior
production capacity, generating 6.7 million tons of cement and clinker. And by that time, the
company had a new CEO—the cofounder’s grandson, Lorenzo H. Zambrano.
Lorenzo H. Zambrano: The Grandson
Lorenzo Zambrano grew up only 140 miles south of Texas, in Monterrey, Mexico,
considered the country’s northern industrial capital. After graduating from the Instituto
Tecnológico y de Estudios Superiores de Monterrey in Mexico with a degree in mechanical
engineering and administration, Zambrano moved to Palo Alto, California, where he earned an
MBA at Stanford University. Of his American school experience, he said, “I learned that there
are other ways of thinking—and also what the competition would look like later.”5 Zambrano
started working at CEMEX in 1968 and worked his way through numerous operational aspects
of the company. Although his family name may have provided Zambrano the job, it certainly
didn’t offer him keys to the corporate suite. It wasn’t until 1981 that he took over as director of
operations. Perhaps a signal of what was to come, Zambrano asked technology employees to
help managers create and submit automated reports so Zambrano could track all operations
across the country. After four years of directing operations, Zambrano was appointed as CEO. At
the time he became CEO, CEMEX’s annual revenue was $275 million.
It would require a clear understanding of the economic situation in Mexico to appreciate

some of the challenges Zambrano faced when he took over. Frequently described as “the lost
decade,” the 1980s sent the country into a seemingly unending economic crisis. Ten years
earlier, Mexico had taken advantage of several low-world-interest-rate loans and amassed a
sizable foreign debt (growing at a rate of 140% in U.S. dollars by 1982). Then the U.S. real
exchange rate appreciated by 27% between 1978 and 1981. Foreigners stopped investing and
5
Lourdes Casanova, Global Latinas: Latin America’s Emerging Multinationals (New York: Palgrave
Macmillan, 2009), 31.
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financing new capital inflows, and the Mexican government stepped in, devalued the peso three
times, and nationalized all the banks. It also implemented an involuntary moratorium on debt
payments. High levels of unemployment and underemployment followed, and the GDP grew at
an average rate of 0.1% yearly between 1983 and 1988.
Although an overly simplified explanation, that was part of the bleak picture when
Zambrano took over at CEMEX. Possibly at first feeling things out at the top, Zambrano made
no quick executive replacements.
Leading: The Zambrano Way
Instead of in a top-floor C-suite, Zambrano’s office was in a modest ground-floor

location, where he embraced state-of-the-art production and IT initiatives. (One journalist called
his office Spartan—although he did have work by Mexican artists Diego Rivera and Joaquín
Clausell on the walls.)6 One of Zambrano’s early hires, Glacio Inguez, was tasked with
developing an IT department. Inguez linked the company’s 11 locations together by satellite (one
of the locations was in an area with only 20 telephone lines!), which meant the company had
more communication service than many people in Mexico.7
CEMEXNet was created in 1987 and allowed coordination of all CEMEX factories to
share information, which quickened the decision-making process. During that same year,
Zambrano reversed his horizontal diversification strategy and acquired a cement producer called
Cementos Anahuac. Another purchase, of Cementos Tolteca in 1989, landed CEMEX among the
top-10 big-boy cement company lists in the world and also eliminated its strongest competitors.
Three years after taking over as CEO, Zambrano replaced his entire leadership team with
a cadre of professional managers. He wanted managers who were open to the ideas of anyone
anywhere in the firm—something that technology advancements had made possible.8 At the
same time, Zambrano sold off the firm’s non-cement assets—petrochemical, mining, and hotel
businesses in Mexico.9
Many of the executives who had been hired much earlier—such as Jaime Elizondo,
Francisco Garza, Fernando González, Victor Romo, and Juan Romero—remained at CEMEX
and went on to become corporate vice presidents or division presidents and chairmen. With time,
Zambrano established a yearlong CEMEX International Management Program run jointly with a
Mexican university and a European school. The program worked on developing 30 high-
potential managers each year.
6
Joel Millman, “Hard Times for Cement Man,” Wall Street Journal, December 11, 2008.
7
Kerry A. Dolan, “Cyber-Cement with a Passion for Technology, Lorenzo Zambrano Has Built a Local
Mexican Cement Company into a World-Class Business,” Forbes, June 15, 1998, 60.
8
“The CEMEX Way,” Economist, E-Strategy Brief: CEMEX, June 14, 2001, http://www.economist.com/node/
655858 (accessed Jun. 2, 2011).
9
Economist, E-Strategy Brief: CEMEX, 2001.
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By 1990, CEMEX held 66% of Mexico’s cement market with revenues of almost $1.2
billion. That was a lot of cement to produce, move, and sell. To enhance speed, a logistics system
called Dynamic Synchronization of Operations was initiated; it used a global positioning system
to link delivery trucks to a central control center. Dawdling in the ready-mix business had
disastrous effects—concrete dried quickly (it took a full 90 minutes before the concrete would
set, and then instead of a concrete mixer, it would become a life-size concrete bust of a concrete
mixer!). For ideas on how to improve dispatching, the company spent time at a 911 dispatcher’s
office in Texas.10 Company representatives also headed to FedEx headquarters in Tennessee to
learn about perfecting delivery service. The new system meant trucks could be dispatched and
tracked and delivery time could be cut from three hours to 30 minutes. “If I can predict where the
orders are coming from and can maintain random distribution of trucks, I should always be able
to have one close to where it’s needed,” said Kenneth Massey, a former IT expert at CEMEX.11
With time, innovative ideas like that would be tested and perfected in Mexico and then applied to
help the firm compete in other markets.
And while many others still thought that e-mail was a gimmick, Zambrano discovered
and embraced it—apparently using it nonstop to fire questions to company managers about
business. “We’re early adopters of leading-edge technology,” Zambrano said.12
Just about the time that Zambrano was leading the company toward becoming one of the
largest cement producers in Mexico, his country’s government opened up the once highly
protective Mexican economy to international businesses—a move that was solidified with the
signing of the North American Free Trade Agreement (NAFTA) in 1993. The removal of trade
restrictions and tariffs translated into increased competition in Mexico’s cement industry, and
Zambrano responded by deciding to enter global markets. “We had to take risks that a lot of
people thought were too high,” Zambrano said. “But we knew that if we did not take those risks,
we would not survive as a company.”13 Indeed, CEMEX became the first Latin American
company to offer American Depository Receipts on the New York Stock Exchange. The plan
behind that strategic move was intended to increase recognition of the company’s name, offer
transparency, and provide share access to more investors.14
The lore surrounding Zambrano’s character included his making CEMEX’s first
international acquisition—in 1992, in Spain, on the 500th anniversary of Columbus’s discovery
of Latin America.15 Other accounts claimed it was on the 500th anniversary of Spain’s
10
John Moody, “Mexican Cement Maker with a Worldview,” New York Times, April 15, 2004, late edition, 1.
11
Peter Katel, “Bordering on Chaos,” Wired, http://www.wired.com/wired/archive/5.07/cemex_pr.html
(accessed May 18, 2011).
12
Gideon Lichfield, “Cemex: Cement Plus Heavy-Duty Networking Equals Big Profits,” Wired, October 2007.
13
Diane Lindquist, “From Cement to Services,” Chief Executive magazine, November 1, 2002,
http://chiefexecutive.net/from-cement-to-services (accessed May 23, 2011).
14
“CEMEX S.A. de C.V. History (‘Early 2000: The Purchase of Southdown’),” Funding Universe,
http://www.fundinguniverse.com/company-histories/CEMEX-SA-de-CV-Company-History.html (accessed Jul. 12,
2011).
15
Casanova, 32.
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colonization of Mexico.16 Whichever was more accurate, the tale provided a sense of the national
pride with which the company and Zambrano’s charisma grew—not to mention the jump in
profit margins (see Exhibit 5 for financials).
The company obtained funding from various markets, including the United States. The
revenue generated in dollars was sometimes not sufficient to cover U.S. dollar debt service,
forcing CEMEX to rely on the peso or other non-U.S.-dollar-denominated earnings and thus
necessitating it to hedge the dollar-foreign-currency exposure with financial derivatives (see
Table 1 for instruments).
Table 1. CEMEX derivative financial instruments, in millions of U.S. dollars.

Notional Notional
Instruments Maturity Date
Amount17 Amount
2004 2005
Forward foreign exchange contracts 4,898 3,200 01/06 07/07
Interest-rate swaps 1,950 2,725 06/09 04/10
Cross-currency swaps 1,118 2,290 06/06 06/11
Derivatives related to energy 168 159 12/07 05/17
Data source: CEMEX 2006 20-F Report, 96.
CEMEX used financial derivatives that included forward foreign exchange contracts,
interest-rate and currency swaps, and options. Given CEMEX’s global operations, several factors
affected its exposure to market risks (e.g., fluctuations in interest rates or foreign exchange rates
in countries in which it operated). That made CEMEX vulnerable to any currency devaluations
from countries in which it did business. It also meant that the firm’s production costs, such as
fuel, energy, and even cement prices, had to be adjusted from time to time to account for floating
dollar/peso exchange rates. To protect itself from these risks, CEMEX used financial derivatives.
(See Figure 1 for a currency-denominated-debt chart.18)
16
John Paul Rathbone, “Latin America: No Longer the Man with a Moustache and a Guitar,” Financial Times,
November 22, 2010.
17
According to CEMEX, these figures measure interest paid or received and don’t represent credit loss
exposure (2007 20-F Report, 114).
18
As of March 2006, CEMEX’s dollar-denominated debt, after accounting for currency-related derivatives,
amounted to 75% of its total debt.
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Figure 1. Foreign currency risk, December 31, 2005.19

GBP
JPY 2%
MXN 5%
21%
EUR
21% USD
51%
Leveraging core cement assets, including figuring out a way to mitigate supply and
demand issues, was something Zambrano did by investing in port terminals and vessels to move
his product economically and swiftly. Coastal terminals around the world were also used to
facilitate exports. For example, U.S.-based terminals were used extensively to import cement to
the United States, not only from CEMEX, but from others selling to Americans. According to
one source, a huge increase in Chinese cement that entered through CEMEX’s terminal doubled
profits that year.20 Always the technocrat, CEMEX made shipping decisions and aggregated
globally through CEMEX’s IT system—trading decisions were kept regional and close to
markets.21
When asked about the complexity of running a global company and about his subsuming
style, Zambrano told an Economist reporter that his goal was to run the world’s best—not the
biggest—cement company.22 As he built shareholder value, Zambrano continued to acquire
companies—and Ferraris—and held an enviable collection of both by 2006.
The CEMEX Way
Under Zambrano’s leadership, a movement of sorts took place that, by 1998, had become
known as “the CEMEX way.” What exactly did that mean? Well, it started with a centralization
strategy and grew to become its global business model. It had three prongs. Roger Gonzalez was
CEMEX finance director in 1998 and described the treasury organization as “a mess”—its
19
USD = U.S. dollars; EUR = euros; MXN = Mexican pesos; JPY = Japanese yen; GBP = British pounds.
20
Pankaj Ghemawat, “The Globalization of CEMEX,” 710-017 (Cambridge, MA: Harvard Business
Publishing, 2004), 6.
21
Donald R. Lessard and Rafel Lucea, “Embracing Risk as a Core Competence: The Case of CEMEX,” Journal
of International Management 15 (2009): 302.
22
“The Master Builder,” Economist, October 13, 2005, http://www.economist.com/node/5017200 (accessed
Aug. 12, 2011).
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operations reported to local management and had little to do with corporate.23 Frustrated with
having to fumble his way around the firm’s finances, Gonzalez restructured all CEMEX treasury
departments around the world (which at that time consisted of places in North America, Africa,
Asia, and Europe) to report straight to him and use the same IT and reporting system. That effort
reduced cost, allowed comparison of diverse geographies, and provided financial information to
the whole system—not just the treasury department.24 Zambrano expanded on the centralization
approach in an interview in 2002, saying that it was an evolution of the firm:
Each [subsidiary] company had developed its own subculture, not a single
CEMEX culture…At each CEMEX plant we had a manager and an accountant.
Each plant had its salesmen and each plant was fighting for territory…With time,
it would be harder for the systems to integrate, to communicate, and harder for
people to move from company to company. And so there are large savings to be
made when there are identical systems everywhere or very similar ones.25
Prong 1: Using cutting-edge technology
The first prong of the CEMEX way included the use of cutting-edge technology
whenever possible. Part of that involved sharing a single Internet-based information system,
using similar management techniques, and implementing standardized reporting (to make this
easier, CEMEX specified the make and model of all computers to be used). Corporate knew
what was going on in every part of the world, and innovations from corporate could be rapidly
spread from one place to another. An executive from Mexico could land in Egypt, connect his or
her laptop, and be unable to detect a single difference in the way things worked. Eventually, the
CEMEX IT department’s expertise was gathered together and offered as an IT consultancy
service in a company called Neoris.
Prong 2: Growth through acquisition
The second prong of the CEMEX way was its strategy of growth through acquisition.
This was not exactly earth-shattering. It was well documented that the majority of M&As failed,
but CEMEX’s seemed to thrive. Integrating purchased operations with existing CEMEX
operations and applying CEMEX’s practices was key, and that depended on management’s
ability to pick the right targets at the right price.26 By the time CEMEX was celebrating its 100th
anniversary in 2006, it had direct operations in 22 countries. And, by the way, the firm’s official
language was English.
The United States was the first foreign country in which CEMEX tried to establish a
presence—attempted in 1989, that deal went over like a concrete balloon. (The company had
23
Tabitha Neville, “Measuring up the Future of Finance,” Corporate Finance, August 1, 2004.
24
Neville.
25
John Barham, “An Intercontinental Mix,” Latin Finance, April 1, 2002, 24.
26
CEMEX 2007 20-F Report, 4.
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been exporting to the United States for many years.) As more of a joint venture, CEMEX
acquired 50% of outstanding shares of Southwestern Sunbelt Cement Inc., which owned concrete
and distribution companies in Arizona and California. Not happy about the transaction, a group
of competitors and a couple of labor unions filed a petition on behalf of the regional industry
initiating an anti-dumping duty investigation of CEMEX.27 A few months later, the U.S.
Department of Commerce (DOC) issued its results, finding “that the Portland gray cement and
cement clinker from Mexico was being sold in the United States at less than fair value.”28 The
DOC imposed an anti-dumping duty order and U.S. Customs slapped a “dumping margin equal
to the highest rate found for any firm in the LTFV investigation, which in this case was
CEMEX’s margin of 61.85%.”29 Unable to get the ruling overturned, Zambrano reduced U.S.
exports by 30% and moved on—to Europe.
In 1992, CEMEX stepped into one of the largest cement industry markets in Europe
when it purchased two cement producers in Spain for close to $2 billion—gaining 25% of
Spain’s market share (see Exhibit 6 for major CEMEX deals). In contrast to its Mexican sales,
most cement in Spain was sold in bulk to ready-mix contractors.30 Aside from the obvious
benefits, such as a shared language, the purchase placed Zambrano in a market going head to
head with two firms that would become fierce competitors, Holcim and Lafarge. Both paid
double what CEMEX did for half the capacity that CEMEX gained to enter the Spanish market.31
The timing of the acquisition was questionable and had industry onlookers wondering if CEMEX
would survive it because, shortly afterward, Spain’s economy crashed. But it was that deal, and
how CEMEX took over, that became the template for future successful integrations. The speed
with which it turned the two businesses around (slightly more than one year) became standard
practice.32 Several scholars had noted that the acquisition was an important factor that ensured
CEMEX’s survival during the 1994–95 Mexican peso crisis.
With time, CEMEX worked to increase customer service in its Spanish market through
various means, such as providing nighttime delivery of ready-mix concrete (essentially 24-hour
service), loyalty incentive plans, and the ability to access accounts through mobile phones.33 And
although those efforts may have had an impact on sales, at least one analyst noted that increasing
volume in Spain was likely due to the country’s demand from the commercial and industrial
sectors.34 Despite putting the squeeze on its competitors with the initial acquisitions, competition
was stiff in Spain, particularity around its large cities, and as a result, prices were lower than they
were in other markets. The company tried to keep costs lower by adopting innovative practices
27
Article 1904 Binational Panel Review Pursuant to North American Free Trade Agreement, Secretariat File
No: USA-95-1904-02, Review (August 1, 1992-July 31, 1993), http://registry.nafta-sec-alena.org/cmdocuments/
79c83d47-0a35-4c3d-a503-b690308d7e4b.pdf (accessed May 21, 2011).
28
http://registry.nafta-sec-alena.org/cmdocuments/79c83d47-0a35-4c3d-a503-b690308d7e4b.pdf, 4.
29
http://registry.nafta-sec-alena.org/cmdocuments/79c83d47-0a35-4c3d-a503-b690308d7e4b.pdf, 7.
30
Todd Vencil, “CEMEX S.A.B. de C.V.,” Davenport & Company Equity Research, February 21, 2008, 6.
31
http://www.fundinguniverse.com/company-histories/CEMEX-SA-de-CV-Company-History.html.
32
Ghemawat, 7.
33
34
Babu, 5.
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that included using tires, meal flour, and organic waste instead of petroleum coke for fuel.35 In its
2006 annual report, the company said the Spanish market was responsible for 9% of its net sales
(see Exhibit 7 for revenue breakdown by region).
Two years after its first successful non-Mexican acquisition, CEMEX stepped back into
the United States, this time with a lease for a dry-process cement plant in Texas. That same year,
CEMEX moved into Central and South America, making acquisitions in Venezuela, Panama,
Trinidad, the Dominican Republic, and Jamaica. At the time, Venezuela was suffering from an
economic crisis, and Zambrano snatched up the country’s largest cement producer for an
amazing price. The facilities CEMEX purchased were located close to the coast, giving the
company access to northern Brazil, Panama, and the Caribbean and, with that, opportunities to
export and trade more easily.36 And when the government extended a housing program to its
citizens in 2005, it was a boost to cement demand—especially the ready-mix business. CEMEX
also purchased a new limestone quarry in 2005, owned and operated four ports, and possessed
three marine terminals and one river terminal. It turned out that by 2006, CEMEX was the
largest-capacity producer in Venezuela.
Following years of military dictator Manuel Noriega’s mayhem, Panama was being
rebuilt, which meant that when CEMEX made its purchase there in 1994, the country needed
concrete. The 1996 acquisition of two of the Dominican Republic’s largest cement producers
placed CEMEX in third place globally within the industry—a position that kept its competitors
on their toes.
Aside from the romanticized reasons for why Zambrano took CEMEX international, he
explained to stockholders his multinational vision that seemed gutsy at a time (1995) when
Mexico was in another economic crisis. Essentially Zambrano believed that the industry was
going to consolidate and that global expansion would reduce the instability of regional cycles.
He also said that developing credit lines outside of Mexico and diversifying geographically
protected CEMEX from losing its shirt during the Mexican economic crisis. “Our timely
geographic diversification, constant attention to developing credit lines outside Mexico, early
refinancing, use of non-Mexican assets to raise low-cost capital, and our international trading
network all contributed to our ability to profitably weather this recent crisis,” Zambrano said.37
The Trinidad and other island acquisitions granted CEMEX supplier status to the
Caribbean islands—a geographic region it thought was key. The area helped the company’s
export business, thanks to its eight marine terminals.
From the islands, Zambrano next moved into Asia, heading to the Philippines in 1998,
where it acquired its biggest cement company during the Asian financial crisis. He also bought a
minority stake in an Indonesian state-owned cement company (that country’s population made it
35
36
Casanova, 124.
37
Lorenzo Zambrano, “Letter to the Stockholders,” CEMEX annual report, 1995.
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attractive) and another in Malaysia. As it turned out, the Philippines market was quite similar to
the Mexican market—bagged cement was king. That move also gave the firm export capabilities
given that its operations were within close proximity to ports.
That same year—1998—CEMEX was listed on the New York Stock Exchange and
Zambrano went out shopping again. This time, he established footprints in the Middle East,
buying a cement factory in Egypt in 1999 and giving the company the largest cement capacity in
that country. It didn’t hurt that when oil revenues were high, cement sales in the area were too. In
2006, the company was making good money.
CEMEX continued to expand in Central and South America with the acquisition of
companies in Costa Rica and Columbia in 1999. Costa Rica was primarily a retail market; almost
three-quarters of its cement was sold in bags, according to CEMEX, and by 2006, it had only two
producers—CEMEX and Holcim.
In 2000, Zambrano decided to try the United States again, and CEMEX purchased
Southdown Inc.—a cement manufacturer with plants in California, Colorado, Florida, Kentucky,
Ohio, Pennsylvania, Tennessee, and Texas—for $2.8 billion, effectively creating a cement
powerhouse in North America. Interestingly, Southdown was one of the companies that had led
the earlier anti-dumping suit against CEMEX. According to the Financial Times, there was a
global factor that influenced this acquisition: “The deal reduces CEMEX’s dependence on
volatile emerging markets. Developed countries, largely Spain and the U.S., will now account for
a third of cash flow and the latter market should continue to grow nicely even if the economy
slows.”38 CEMEX was now the largest cement producer in all of North America.
That U.S. purchase didn’t mean, however, that CEMEX was done with emerging-country
buys. The very same year, it moved into Nicaragua, and the following year, CEMEX bought a
Puerto Rican cement company and another in Trinidad. It was also during 2001 that CEMEX
experienced one of its few failed acquisition attempts. The state-owned Indonesian company
Semen Gresik wouldn’t allow Zambrano a controlling interest in the business. CEMEX had
bought a small stake in the company a few years earlier (14% and then 25%). Fortunately,
CEMEX was able to increase the size of its footprint in Asia by increasing its share of equity in
CEMEX Asian Holding (98.6%).39
The next big buy for Zambrano and CEMEX was the 2005 purchase of RMC, a huge
cement company based in the United Kingdom. That deal was the largest one a Mexican
company had ever taken on, and the move increased CEMEX’s stake in the U.S. market as well.
It also represented a major global move because CEMEX would now have plants in the Czech
Republic, Germany, France, Norway, Sweden, Denmark, Finland, Poland, Croatia, Hungary,
Latvia, Israel, Malaysia, and the United Arab Emirates—some places where neither English nor
Spanish were spoken. The purchase once more squared CEMEX up with two of its largest
38
Lex Column, “CEMEX,” Financial Times, October 9, 2000.
39
Mergent Online Company Detail Report (accessed May 23, 2011).
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competitors. RMC in the United States had been a major customer of Holcim’s, and in France a
big client of Lafarge’s.40
To buy RMC, CEMEX needed British pounds, but it had obtained the money to make the
purchase in U.S. dollars. That meant using derivatives to hedge the variability associated with
the exchange rate difference between the dollar and the pound.41 RMC offered markets in
developed countries but also continued to increase its ownership in various minority interests in
Chile, Puerto Rico, and other developing regions. Developing-country expansion created
opportunism for CEMEX—for one, because those places were growing faster than developed
regions, which meant there was more building and construction taking place. For another,
Zambrano was able to seek out underperforming companies to restructure in areas that were
accustomed to branded and bagged cement products.
When Zambrano described the methodology with which CEMEX looked for companies
to buy, one of the key words repeated in his explanation was opportunity. In a nutshell,
CEMEX’s organizational structure offered centralized control and quick decision making and
provided a conceptual framework to determine whether or not a potential company met its
criteria and should be targeted. Essentially Zambrano looked for firms that were big in their
space, held a solid market share or the likelihood of promise, and would probably be capable of
helping CEMEX restructure the market as a whole.42 They also looked at companies in countries
with high infrastructure needs, high birth rates, and young populations with housing needs.43
All acquisitions were purely debt financed—most by short-term bank loans.44 “We have
learned how to stick to our discipline during the bidding and negotiation process…We have
planned how to identify and capture synergies, integrating new acquisitions with increasing
speed and efficiency,” said Hector Medina, executive vice president of finance and legal. “We
have learned how to recover financial flexibility quickly, after a transaction was complete.”45 A
year or two after each acquisition, Zambrano would take data showing the improvements back to
the lenders to convince them that the company was doing better and refinance the loans.
Prong 3: Marketing and branding
The third prong of the CEMEX way was marketing and branding. Although many people
might have associated cement with the big concrete-mixer trucks that rolled through cities, in
Mexico, it was more likely that cement was associated with Kraft paper bags, sewn top and
bottom, with CEMEX written across the top or on the side. Many families in Zambrano’s
40
Casanova, 128.
41
42
Casanova, 85.
43
Factiva, Voxant fair disclosure wire, “CEMEX S.A. Conference Call—RMC Integration Update—Final,”
June 21, 2005 (accessed May 23, 2011).
44
“A Q&A with CEMEX CEO Zambrano,” Bloomberg Businessweek, October 29, 2009,
http://www.businessweek.com/magazine/content/09_45/b4154028719047_page_2.htm (accessed May 27, 2011).
45
Conference call, June 2005.
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country built their own homes, often one room at a time, so providing access in an affordable
way was important. That fact became even more salient when the Mexican president at the time,
Vicente Fox, promised voters that before his presidency ended, every peasant shack in Mexico
would have a cement floor.46 CEMEX even made it possible for Mexican migrants in the United
States to buy cement for their families back home who could then pick it up at a nearby store.47
One place where people could pick up their cement was a Construrama—CEMEX’s own
chain of construction materials stores, which it launched in 2001. The company owned three
trademarked brand names: Monterrey, Tolteca, and Anahuac. It offered distributors the
opportunity to sell their products under the Construrama brand name. By 2006, CEMEX owned
more than 2,000 stores with more than 730 independent franchises.48
In keeping with the company’s practice of testing ideas in Mexico and applying refined
versions elsewhere, a research team lived several months in a distressed Mexican city to better
understand customers’ needs, wants, and habits in areas of poverty. Three major factors were
discovered: no access to money, little to no construction skill, and lack of adequate services.49
CEMEX then created a program called Patrimonio Hoy that matched low-income Mexicans who
dreamed of building a home, or a better home, with industry experts and a supply of necessary
materials, architectural advice, fixed prices, and CEMEX financing (80%) to build houses (and
eventually schools and offices). Participants, in return, paid a very low weekly payment.50 What
started out as a strategy to capture an untapped market turned into a brand loyalty and
recognition operation. Being that close to the end user was highly unusual in the industry and a
distinguishing feature of CEMEX globally.
PMI strategy51
It was during the post-merger integration (PMI) phase that one learned much of how the
CEMEX way played out. Following CEMEX’s first acquisition, Zambrano and his team looked
for lessons learned and certainly paid attention to the findings—the PMI process had to be
informed around the weighty cultural differences that were bound to exist between CEMEX and
the companies it acquired. “The review inside is always different from the outside,” said
CEMEX senior vice president of corporate strategic planning Juan Pablo San Agustin.52 Based
on that first acquisition and others that followed, CEMEX ended up developing a highly flexible
46
E-strategy brief, 2001.
47
Moody, April 2004.
48
49
Pablo Sanchez, Joan Enric Ricart, and Miguel Angel Rodriguez, “Influential Factors in Becoming Socially
Embedded in Low-Income Markets,” Greer Management International, June 1, 2006, 28.
50
Patrimonio Hoy: Building a Better Life, 2006 World Business Award, http://www.iccwbo.org/
uploadedFiles/WBA/CEMEX.pdf (accessed Jul. 1, 2011).
51
The information for much of this section was drawn from statements made by Juan Pablo San Agustin during
a conference call on June 21, 2005.
52
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PMI organization that could quickly scale up or down, depending on need, without interrupting
the regular flow of CEMEX business worldwide.
The PMI team included legacy CEMEX managers and personnel from the acquired firm.
As one former senior vice president of strategic planning said, “One of the lessons we learned
from earlier PMIs is that the integration process is more effective and frankly much faster if we
combine personnel from both organizations.”53 The PMI group included business leaders,
process experts (to implement the CEMEX way), and analysts. The group used a standardized
organizational template that consisted of local functions (production, commercial, and logistics)
and was staffed by local, legacy acquired-company managers. And back-office functions (IT,
treasury controllership, procurement, and human resources) reported to global managers who
were legacy CEMEX managers. The size of the team was generally large in the first months
following an acquisition and shrank as execution duties were embedded into the new business.54
Some team members stayed on and were responsible for operations of the acquired business. The
PMI team reported directly to Zambrano and his leadership group.
Generally looking to exceed a 10% return on capital used for acquisitions, CEMEX had a
formal framework it used once it owned a company (see Exhibit 8 for the process). From time to
time during the PMI phase, certain business practices or processes were discovered that would
improve the CEMEX way model and operations. For example, during the RMC onboarding, San
Agustin said that CEMEX made plans to implement RMC’s quarry cycle management and its
use of automation into the rest of CEMEX’s operations.55
A Shopping Cart Full of Rinker
In October 2006, CEMEX executives announced their offer to buy a building materials
company called Rinker Group Limited. Although it was an Australia-based company, Rinker
conducted most of its business in the United States, focusing on the West, Southwest, and
Southeast. “These are the [regions] with the highest population and GDP growth rates, as well as
the strongest long-term construction projects and prospects,” said Zambrano.56 The acquisition
would also give CEMEX an important position in a new significant market, Australia, and act as
a small introduction to China. The purchase would double the size of CEMEX’s ready-mix
business and triple the size of its worldwide aggregate business.
The bid included purchase of all outstanding Rinker shares at $13 per share and all
outstanding Rinker American Depository Shares (ADS) for $65 per ADS in cash, with a total
transaction value of $12.8 billion (including Rinker’s debt). The offer was made in U.S. dollars,
and CEMEX had secured committed facilities to pay cash in full to Rinker shareholders.
53
54
55
56
Conference call, October 2006.
-16- UV6381
Zambrano was firm in his resolve that CEMEX had consistently generated value for its
shareholders after 14 other significant acquisitions (see Figure 2 for stock prices). He said:
This acquisition will reinforce our strategy of investing across our value chain in
our industry, significantly strengthening our aggregates and ready-mix businesses.
The acquisition of Rinker, which meets our long-standing investment criteria, will
improve our ability to serve customers in the United States, the world’s largest
and most dynamic building material market.
On a pro forma basis, the new CEMEX would generate slightly more than 55% of
EBITDA in cement, roughly 20% in concrete, and 15% in aggregates. This
acquisition is fundamentally about value creation, not about size. More
importantly…the result will be the most profitable global building materials
company. That was the goal when we acquired Southdown and RMC, and it is the
reason I’m proposing to acquire Rinker, to create industry-leading value for our
shareholders.57
Figure 2. CX ADS stock price.58
$30
$25
$20
$15
$10
$5
$‐
Data source: Yahoo! Finance.
CEMEX was counting on the deal to help it generate pro forma revenues of $23.2 billion
through its combined operations in more than 50 countries. And as the market analyzed the deal,
many feared he may have bid over the odds and gone one step too far. Zambrano kept his focus
and his resolve strong. “We expect [this transaction] to be immediately accretive to free cash
flow and to cash earnings per share,” he said. “We are committed to recovering our financial
flexibility, as measured by reducing the ratio of net debt to EBITDA, to no more than 2.7 within
two years.”59 CEMEX had accomplished exactly that with the Southdown and RMC
acquisitions—but would the third also be successful?
57
58
These prices are adjusted for stock splits and dividends.
59
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Exhibit 1
Images of Concrete
Source: Case writer.
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Exhibit 2
2006 Capacity Shares by Country (percentage)
Holcim Lafarge CEMEX Heidelberg

Argentina 15.5 0.0 n/a 0.0
Austria 3.0 28.2 n/a n/a
Brazil 6.3 7.0 n/a 0.0
Canada n/a 89.8 n/a n/a
Chile 45.0 26.7 n/a 0.0
China 8.0 5.3 n/a 2.9
Colombia 8.3 0.0 26.5 n/a
Costa Rica 62.5 0.0 37.5 n/a
Croatia 22.7 0.0 54.5 0.0
Egypt 18.6 20.0 11.4 0.0
France 16.4 35.5 *15.0 n/a
Germany 15.8 8.8 14.0 26.3
Great Britain 0.0 36.1 27.8 30.1
Greece 0.0 57.3 0.0 0.0
India 23.0 5.8 0.0 0.4
Indonesia** 17.9 3.3 35.1 32
Italy 7.6 2.2 0.8 0.0
Japan 0.0 3.7 0.0 0.0
Latvia 0.0 0.0 100.0 0.0
North Korea 0.0 15.6 n/a n/a
South Korea 0.0 14.2 n/a n/a
Malaysia 4.6 14.9 3.2 n/a
Mexico 20.8 1.1 50.0 0.0
Panama 64.0 0.0 36.0 0.0
Philippines 30.0 32.0 20.8 0.0
Poland n/a 22.8 15.5 19.2
Portugal 0.0 *14.0 *14.0 0.0
Puerto Rico 0.0 0.0 54.5 0.0
South Africa 23.7 20.9 0.0 0.0
Spain 11.7 13.5 23.0 0.0
Taiwan 0.0 0.0 0.0 0.0
Thailand 22.5 0.0 1.7 0.0
Turkey 0.0 2.8 0.0 8.6
United Arab Emirates 6.8 9.6 5.0 0.0
United States 2.0 3.0 5.0 n/a
Venezuela 24.7 15.5 47.4 0.0
* 2005 data
** A 2004 tsunami destroyed 80% of Lafarge’s capacity.
Data source: David Hargreaves, Global Cement Report, 8th ed. (Dorking, UK:
Tradeship Publications, 2009).
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Exhibit 3
Competitor Comparison, FY 2006
Holcim Lafarge CEMEX HeidelbergCement

Cement capacity (millions of tons) 164.4 164.0 98.2 68.0
Number of cement plants 152 166 77 -
Aggregates and concrete 1,474 1,735 2,320 -
Revenue (millions of U.S. dollars) $19,12.85 $21,224.81 $18,249.36 $9,695.35
Revenue year over year growth (%) 29.8 5.9 19.1 12.6
EBITDA (millions of U.S. dollars) $4,934.44 $4,766.28 $4,134.68 $1,750.21
EBITDA margin (%) 25.7 22.5 22.7 18.1
Net profit (millions of U.S. dollars) $1,679.13 $1,722.19 $1,906.17 $425.09
Net profit margin (%) 8.8 8.1 10.5 4.4
Number of countries 70+ 70+ 50 50+
Number of employees 90,000 71,000 50,000 43,000
Data source: Sajeer Babu, “Cemex SAB.de C.V.,” Independent International Investment Research PLC, April 11,
2007, and company annual reports.
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Exhibit 4
Map of Mexico
Source: U.S. Central Intelligence Agency, “Mexico,” CIA World Factbook, https://www.cia.gov/
library/publications/the-world-factbook/geos/mx.html (accessed Aug. 24, 2011).
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Exhibit 5
CEMEX Financials
2000 2001 2002 2003 2004 2005

Summary Financials (millions of U.S. dollars)
Revenues 5,560 6,838 6,640 7,068 7,786 15,188
Gross profits 2,452 2,992 2,932 2,994 3,403 5,996
EBITDA 2,007 2,227 1,947 2,080 2,423 3,526
Operating profit 1,635 1,633 1,332 1,436 1,767 2,464
Net income 989 1,165 534 622 1,251 2,090
EPADR (U.S. dollars) 1.79 2.02 0.90 0.97 1.86 2.99
Assets 15,778 16,252 15,813 16,016 17,370 26,719
Net debt 5,363 4,943 5,409 5,575 5,589 8,878
Shareholder’s equity 5,257 6,185 5,700 6,234 7,826 9,809
Free cash flow (CEMEX definition) 912 1,130 980 1,118 1,377 2,124
2000 2001 2002 2003 2004 2005

Growth Rates (%)
Revenues 16 23 −3 6 10 95
EBITDA 12 11 −13 7 16 46
Operating profit 14 0 −18 8 23 39
Net income 2 18 −54 17 101 67
EPADR (based on U.S. dollars) −7 13 −56 8 92 60
Free cash flow (CEMEX definition) 5 24 −13 14 23 54
2000 2001 2002 2003 2004 2005

Liquidity, Debt, and Capital
Debt/equity 108% 87% 101% 94% 76% 97%
Net debt/equity 135% 99% 107% 90% 71% 88%
Debt/total capital 52% 46% 50% 48% 43% 49%
EBITDA/Interest paid (LTM) 4.3x 5.5x 5.8x 5.5x 6.8x 6.8x
Net debt/EBITDA (LTM) 3.5x 2.7x 3.2x 2.7x 2.2x 2.4x
2000 2001 2002 2003 2004 2005

Other (%)
Effective tax rate 13 11 9 12 12 14
Cash tax rate −18 28 −1 20 11 12
2000 2001 2002 2003 2004 2005

Macro assumptions
CX Weighted-average inflation 2.4% −1.0% 3.9% 10.5% 6.2% −4.1%
Exchange rate (Mexican peso/U.S. dollar) 9.61 9.16 10.46 11.24 11.15 10.64
Exchange rate (U.S. dollar/euro) 0.94 0.89 1.05 1.26 1.36 1.18
Exchange rate (U.S. dollar/pound) 1.49 1.46 1.61 1.79 1.92 1.72
Data source: Jorge Kuri and Fabio Zagatti, “CEMEX Fine Tuning EPS,” Morgan Stanley analyst report,
February 23, 2007, 3.
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Exhibit 6
CEMEX Major Acquisitions
(investments in millions of U.S. dollars)
Year Country Name of Acquired C/O Stake Investment

1992 Spain Valenciana 94% 1,983
1992 Spain Sanson 92% 531
1994 Venezuela Vencemos 61% 360
1994 Panama Bayano 95% 60
1994 Trinidad Trinidad Cement Ltd. 20% -
1995 Dominican Republic Nacionales 68% 110
1996 Colombia Dimante 54% 425
1996 Colombia Samper 94% 345
1997 Philippines Rizal 30% 91
1997 Dominican Republic Nacionales 30% 60
1998 Philippines Rizal 40% 154
1999 Indonesia PT Semen Gresik 26% 230
1999 Philippines APO 100% 500
1999 Chile Bio Bio 12% 34
1999 Costa Rica Pacifico 95% 100
1999 Egypt Assiut 77% 549
2000 United States Southdown 100% 2,803
2001 Thailand Saraburi 100% 73
2002 Puerto Rico Puerto Rico Cement Co. 100% 281
2005 Europe/United States RMC 100% 5,800
Data source: Compiled from Paul Rosenberg, “CEMEX S.A. de C.V.,” Bear Stearns analyst report, March
22, 2007, 11; and Mergent Online Company Detail Report.
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Exhibit 7
Geographic Breakdown of Net Sales before Rinker Bid
Africa/Middle Asia
South/Central East 2%
America/ 3%
Others
Caribbean 8%
9%
Mexico
19%
Rest of Europe
16%
United States
25%
Spain
United 9%
Kingdom
9%
Foreign Sales/Total Sales Outside of Mexico and Foreign Sales/Total Sales in the United States
Outside Mexico US
120%
100%
25%
80% 26% 24% 22% 22%
60% 13%
40% 81%
65% 66% 66% 67%
56%
20%
0%
2000 2001 2002 2003 2004 2005
Data source: CEMEX 2006 and 2003 20-F reports.
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Exhibit 8
CEMEX PMI Stages
Identify and manage

key control points in
acquired firm
operations.
Ensure smooth
Assess potential
transition from PMI
synergies, define plans
activity to firmer
for capturing them,
operations to realize
and track those plans.
synergies.
Develop strategies to deploy Define effective organization

CEMEX management structure for new operation
platforms to new business based on CEMEX
and produce a multiyear task. philosophy and retain key
talent.
Source: CEMEX conference call, June 21, 2005.
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Appendix
Worldwide Cement Market
The cement industry was strongly tied to the seasonal construction industry and was
sensitive to the same ups and downs. Without the need for buildings, bridges, roads, sewers, and
other infrastructure, the demand for cement would be limited. When worldwide demand for
building was high, profits soared. When there was no money for development, profits sank.
Other factors that affected the volatility of local construction markets and thus the cement market
were weather, interest rates, population migrations, business spending, and government
revenue.60
Developing countries were the major consumers of cement in 2006; that spending was
mostly due to the need for infrastructure and small-scale building (lodging, family-owned
business, etc.). Although less robust, the drive for cement in developed-country markets was, for
the most part, based on repair and maintenance issues and improving living standards (see
Figure 1 for regional demand). The 2006 global demand for cement and concrete products was
estimated at $186.3 billion. Asia, the Americas, and Western Europe offered the largest markets
(see Figure 2).
Figure 1. Potential demand for cement and concrete products in 2006.
Middle East Africa 4% Oceana 1%

4%
Americas
34%
Europe 25%
Asia 32%
Data source: Philip M. Parker, The 2006–2011 World Outlook for High Early Strength ASTM Type III Portland
Hydraulic Cement (Icon Group International, 2005), 16–17.These data were generated from historical figures
across 200 countries and should be seen as estimates of past and future levels of latent demand.
60
First Research, “Cement, Concrete and Construction Material,” Industry Profile, quarterly update, June 14,
2010.
-26- UV6381
Appendix (continued)
Figure 2. World market, in millions of U.S. dollars.
198,000
196,000
194,000
192,000
190,000
188,000
186,000
184,000
182,000
180,000
178,000
176,000
2001 2002 2003 2004 2005 2006
Data source: Parker, 16–17.
Cement was considered an internationally traded commodity and tended to command a

low unit selling price. Many cement companies built their factories near quarries, or they
purchased their own quarries to cut the cost of transporting raw material. Cement production was
capital-intensive and characterized by high fixed costs—it took time to recoup investments. The
cost of producing cement could be divided into four buckets: 27% was raw materials, 29% was
energy, 32% was labor, and the remaining 12% was depreciation.61 (See Table 1 for worldwide
cement production.)
Once a company launched into the production of cement, there was little room for
diversification. Although cement couldn’t be differentiated much from one company to the next,
the quality could vary slightly depending on the raw material used at the start and added near the
finish. Customers got used to and trusted their cement suppliers, so they tended to be wary of
proposed changes to the product.62 For the most part, large cement companies enjoyed
economies of scale in purchasing and efficiency, while small firms tended to serve small markets
and compete on customer service.
61
Philippe Lassare, “Global Cement Industry Mini Case Series,” Global Strategic Management, 2nd edition,
http://www.philippelasserre.net/minicases.htm (accessed May 30, 2011).
62
van Oss.
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Appendix (continued)
Table 1. World cement production (in thousands of tons).
2005 2006*
US (includes Puerto Rico) 101 101
Brazil 37 37
China 1,040 1,100
Egypt 29 29
France 21 21
Germany 31 30
India 145 155
Indonesia 37 40
Iran 33 33
Italy 46 46
Japan 70 68
Korea 51 52
Mexico 36 40
Russia 49 54
Saudi Arabia 26 26
Spain 50 50
Thailand 38 40
Turkey 43 45
Vietnam 29 33
Other countries 400 500
World Total 2,310 2,500
* Estimates
Data source: U.S. Geological Survey, Mineral

Commodity Summaries 2007, “Cement,” 41,
http://minerals.usgs.gov/minerals/pubs/mcs/2007/mcs20
07.pdf (accessed Nov. 30, 2011).

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UV6381

Rev. Jun. 16, 2014

TAKING A MEXICAN COMPANY GLOBAL—THE CEMEX WAY

Industry: Need a Building? Just Add Water!

CEMEX Company History: Pouring It On

Lorenzo H. Zambrano: The Grandson

It would require a clear understanding of the economic situation in Mexico to appreciate

Leading: The Zambrano Way

Instead of in a top-floor C-suite, Zambrano’s office was in a modest ground-floor

Table 1. CEMEX derivative financial instruments, in millions of U.S. dollars.

Figure 1. Foreign currency risk, December 31, 2005.19

Data source: CEMEX 2006 20-F Report, 100.

The CEMEX Way

Prong 1: Using cutting-edge technology

Prong 2: Growth through acquisition

Prong 3: Marketing and branding

A Shopping Cart Full of Rinker

Figure 2. CX ADS stock price.58

Data source: Yahoo! Finance.

Source: Case writer.

Holcim Lafarge CEMEX Heidelberg

Holcim Lafarge CEMEX HeidelbergCement

2000 2001 2002 2003 2004 2005

2000 2001 2002 2003 2004 2005

2000 2001 2002 2003 2004 2005

2000 2001 2002 2003 2004 2005

2000 2001 2002 2003 2004 2005

Year Country Name of Acquired C/O Stake Investment

Data source: CEMEX 2006 20-F Report, 18.

Data source: CEMEX 2006 and 2003 20-F reports.

Identify and manage

Develop strategies to deploy Define effective organization

Source: CEMEX conference call, June 21, 2005.

Figure 1. Potential demand for cement and concrete products in 2006.

Middle East Africa 4% Oceana 1%

Figure 2. World market, in millions of U.S. dollars.

Cement was considered an internationally traded commodity and tended to command a

Table 1. World cement production (in thousands of tons).

Data source: U.S. Geological Survey, Mineral

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