This case was presented in Fall 2010 and revolves around a critical point in the international cement market in 2000. In this presentation, CEMEX's competitive advantage and global acquisition strategy are examined in the cutthroat competitive cement market.

1. Building the Future™: Conquer the World Cemcordia Consulting Nelly Abilmouna Mark Bundang Ron Cohen Sarah Dupuis Laura Gibson

2. Strategic challenge

3. StrategicChallenge Strategic Challenge Analysis Alternative Strategies Recommendation Implementation CEMEX must determine whether its current acquisition strategy is sustainable.

4. CURRENT SITUATION

5. The traditional international expansion strategy among cement majors is shifting Analysis Strategic Challenge Alternative Strategies Recommendation Implementation Traditionally: Recently: Acquire regional cement firms Attempt to acquire another major

6. Lafarge and Holderbank Pose as Largest Competitive Threats Analysis Strategic Challenge Alternative Strategies Recommendation Implementation

8. France

9. Germany

10. Italy

12. Germany

13. Italy

14. SpainL L H H L L H H L H L H L L H L H L L H

15. Heidelberger, Italcementi and Blue Circle are smaller players and are not threatening in current CEMEX markets Analysis Strategic Challenge Alternative Strategies Recommendation Implementation

17. France

18. Germany

20. Italy

22. Allows firm to enter and capture large capacity shares in key markets Builds synergies Gives them greater financing capabilities Consolidation among the cement majors threatens CEMEX’s pool of potential markets Analysis Strategic Challenge Alternative Strategies Recommendation Implementation

24. Little branding

26. Within market, many regional competitors

27. Attempts to collude and to secure protection from imports

29. CEMEX has grown to become the 3rd largest cement company in the world and the largest international cement trader Analysis Strategic Challenge Alternative Strategies Recommendation Implementation

30. CEMEX has Strong Acquisition Process and Technological Capabilities Analysis Strategic Challenge Alternative Strategies Recommendation Implementation 14

31. CEMEX is well entrenched in several high demand markets, but must expand into key markets to sustain growth Analysis Strategic Challenge Alternative Strategies Recommendation Implementation Asia Caribbean Middle East Sub-Saharan Africa Central America 15

33. Standard, thorough DD methodology

34. Standard report to VP, Finance & Planning

35. Controlling stakes

36. Potential for company and market restructuring

37. PMI Team to facilitate assimilation

38. Integration: reduced manpower, selection of mgmt

40. CEMEX’s expansion process is a sustainable competitive advantage Analysis Strategic Challenge Alternative Strategies Recommendation Implementation Their expansion process is well codified and standardized to allow for efficient, effective and profitable acquisitions

41. Post-merger integration may be lengthened Target returns may not be achieved or may be delayed Example: Recent acquisitions of Egypt and Indonesia: Prayer breaks English not prevalent in some countries PMI is limited in its ability to address language and cultural barriers in new markets Analysis Strategic Challenge Alternative Strategies Recommendation Implementation

42. FINANCIAL ANALYSIS

43. CEMEX’s acquisition capability has proven to be a competitive advantage over the other cement majors. Analysis Strategic Challenge Alternative Strategies Recommendation Implementation * This is an approximation since EBIT was used in calculation instead of NI. ** Total franchise value = sum of franchise value in markets of acquisition.

44. CEMEX comparatively high EBITDA is an indication of the firm’s strong competitive advantage Analysis Strategic Challenge Alternative Strategies Recommendation Implementation CEMEX’s operations are more profitable than the other majors

45. CEMEX should not be concerned about their interest coverage Analysis Strategic Challenge Alternative Strategies Recommendation Implementation 3.6 CEMEX’s Net Debt/EBITDA ratio is the highest and equal to Holderbank’s ratio

46. Analysis: Key Takeaways Analysis Strategic Challenge Alternative Strategies Recommendation Implementation CEMEX’s expansion process is a sustainable competitive advantage Lafarge’s pending acquisition of Blue Circle will significantly alter the competitive landscape CEMEX’s debt-to-total capital ratio is high, but will not hinder expansion Current PMI process does not allow CEMEX to easily address cultural and language barriers

47. ALTERNATIVE STRATEGIc directions

49. Leveraging competitive advantage

50. Flexibility to adapt to country culture

51. Timely solution to market urgency

52. Minimal Financial risk

55. First time CEMEX would acquire firm in many markets, so analysis is more complex

56. Possibility of corporate culture clash due to bigger target

57. Might encounter price competition form another major trying to do the same thing1 – Acquisition of a Cement Major Alternative Strategies Strategic Challenge Analysis Recommendation Implementation

58. Pros Opportunity to complement the power of CEMEX’s competitive advantage with that(those) of another Major Opportunity to learn about the other Major’s competitive advantage(s) CEMEX can benefit from the other Major’s ability to adapt to foreign country cultures where they are established Cons Threat of Major “stealing” competitive advantage Takes a long time to implement (legal contracts, resource selection, management structure, etc.) Difficult to implement (legal contracts, resource selection, management structure, etc.) 2 – Strategic Alliance with a Cement Major Alternative Strategies Strategic Challenge Analysis Recommendation Implementation

59. Pros Significant success achieved with current expansion process Can leverage competitive advantage Minimal financial risk Cons Changing industry landscape may leave CEMEX vulnerable to mergers among competitors. Debt problems may recur if acquisitions are made to quickly. Culture and language issues are not directly addressed 3 – Status Quo Alternative Strategies Strategic Challenge Analysis Recommendation Implementation

60. The firm should maintain its current acquisition strategy Alternative Strategies Strategic Challenge Analysis Recommendation Implementation

61. recommendation

63. Cultural sensitivity courses could be offered as part of PMI process

64. Focus expansion in Asian market to address increasing competition and to secure capacity shares

65. Emphasis on branding in the retail market will help CEMEX gain global exposure and reduce risk from cyclicality

66. Increase marketing efforts in retail market, particularly in developed markets

67. Promote CEMEX brand in newly acquired marketTactical changes to CEMEX’s current strategy Implementation Strategic Challenge Analysis Alternative Strategies Recommendation

68. Rationale for Status Quo Recommendation Strategic Challenge Analysis Alternative Strategies Implementation Ensure timely and successful expansion CEMEX can address increased Asian competition Increases branding and diversifies revenue streams Maximizes returns from each acquisition and allows CEMEX to grow quickly

69. Implementation plan

70. The US, Japan and India are markets with both high capacity and high demand Implementation Strategic Challenge Analysis Alternative Strategies Recommendation

71. Firms in many Asian markets have low valuations compared to firms in North America or Western Europe Implementation Strategic Challenge Analysis Alternative Strategies Recommendation

72. Future acquisitions are strategic and allow CEMEX to target key markets Implementation Strategic Challenge Analysis Alternative Strategies Recommendation Asia JP Africa Latin America and Caribbean SE Asia

74. Secure capacity shares

75. High growth

76. Low firm valuations

77. Consolidation around Mediterranean

78. Greater access to Brazil and African markets

79. Large market size

80. Technological kilns will be barrier to expand within

81. High demand and capacity

82. Low firm valuations

83. Very competitive

84. Dependent on repealing countervailing duty

85. Large market

86. Retail opportunities

88. Conclusion Address cultural and language barriers Current Acquisition Strategy with tactical adjustments Enter retail market and increase brand awareness Leverage and strengthen competitive advantage Long-term growth and profitability

89. Thank you!