Exhibit (a)(5)(D)
[CEMEX - SOUTHDOWN CONFERENCE CALL]
[Questions and Answers]
SOUTHDOWN TRANSACTION
1. WHY ARE YOU INVESTING IN THE UNITED STATES, A MARKET THAT SEEMS TO
BE AT THE TOP OF THE CONSUMPTION CYCLE?
The United States cement market has been growing constantly over
the past years and now its consumption far exceeds its production
capacity. Approximately 1/5 of its demand is satisfied by imports.
We expect that the cement consumption level will be impacted in the
coming years by government programs and the general effect of a
growing economy. Southdown has a strong cash flow generation that
we expect will continue.
2. ARE YOU DEVIATING FROM YOUR STATED STRATEGY OF INVESTING IN HIGH
GROWTH MARKETS
We remain committed to leveraging our expertise in developing
economies, as those markets are attractive to us for a number of
reasons. However, if an attractive opportunity becomes available in
developed economies we may take advantage of it and even leverage
that position (as we have done with Valenciana and Southdown) to
pursue our growth strategy in developing economies. This
transaction serves as a platform to continue our growth path and
diversification strategy.
3. WHY IS THIS AN ATTRACTIVE ACQUISITION FOR CEMEX AND ITS SHAREHOLDERS?
We believe that this transaction will add value to CEMEX because:
1. It will be accretive to CEMEX from day one as it has a strong
free cash flow generation. It will contribute to both our
growth in free cash flow per share and cash earnings per share.
2. It will improve our access to funding sources, as it will lower
our WACC.
3. There will potential cost savings associated with synergies and
the implementation of CEMEX's best practices.
4. It will enhance our stability of free cash flow generation and
will provide a better platform for further investments into
high growth markets.
5. Supports our historical high growth rate while meeting our
acquisition criteria.
6. It will better balance our portfolio of assets and cash flow
generation while delivering returns in excess of our cost of
capital.
4. ARE THERE ANY SIGNIFICANT SAVINGS TO BE DERIVED FROM THE TRANSACTION?
We expect savings to be derived from synergies as a result of
applying CEMEX best practices and processes. We may have to close
one or more facilities for environmental reasons.
5. WHEN DO YOU EXPECT THE TRANSACTION TO BE COMPLETED?
After this announcement, we will initiate the filing of the legal
documents required to continue with the tender offer. Subject to
certain conditions and regulatory approvals, we expect that we can
complete the transaction between the fourth quarter of 2000 and the
first quarter of 2001.
6. WHY DID YOU CHANGE YOUR MIND ABOUT THIS TRANSACTION WHEN YOU
EXPLICITLY SAID THAT YOU WERE NOT INTERESTED?
The conditions we were referring to at that time were of course the
political process we were undergoing in Mexico, the dynamics of the
consolidation of the cement industry worldwide, to name a few.
Today some of such conditions prevail, some, as you know, have
changed. At all times we analyze all the potential investment
opportunities that are available to CEMEX.
7. DO YOU EXPECT THAT SOMEONE ELSE WILL BID FOR THE COMPANY? WILL YOU
GET INTO A BIDDING WAR AS A RESULT OF A POSSIBLE BID?
We believe that we have entered into an agreement that is good for
both Southdown and CEMEX's sharehodlers. The deal that has been
established is fair for both parties.
8. ARE YOU STILL COMMITTED TO YOUR FINANCIAL LEVERAGE AND COVERAGE
OBJECTIVES, OR ARE YOU CHANGING THEM AS A RESULT OF THIS
TRANSACTION?
We remain committed to maintaining a healthy capital structure and
our investment grade ratings. Our financial ratio targets should be
interpreted as guidelines to gauge the size of our potential
investments in the medium to long term. We have set our financial
ratios to aim at a steady state capital structure and we remain
committed to them.
This does not mean that we would not proceed with an attractive
investment if we deviate from our steady state capital structure by
a few decimals. Remember we are generating free cash flow very
rapidly and we can bring down debt quickly, as we have done this
year.
9. WHAT REGULATORY APPROVALS DO YOU NEED?
We will need the approval of the Federal Trade Commission under The
Hart Scott Rodino Antitrust Act.
10. CAN YOUR BALANCE SHEET SUPPORT THE SOUTHDOWN ACQUISITION AND THE
BUYBACK?
Our acquisition capacity by the end of year 2001 is of
approximately US$4.5 billion while still complying with our stated
financial targets. That capacity is enough to acquire Southdown and
do the share buy back program. The coverage and leverage ratios are
expected to be within our stated criteria by the end of 2000 and
2001, assuming the transaction is completed by the end of 2000.
11. HOW DO YOU PLAN TO FINANCE THE ACQUISITION?
We will finance the acquisition through two transactions:
1. A preferred equity issuance by Valenciana without recourse to
CVCP or CEMEX for US$1.5 billion.
2. Facilities at Southdown for up to US$1.4 billion.
After the transaction is completed, we intend to maintain our
investment grade rating as we expect our target ratios for leverage
and coverage to be around 2.7 and 4.0 and on a pro-forma basis for
year-end 2001 to be around 2.0 and 4.0 respectively.
VALENCIANA IPO
12. ARE YOU CONSIDERING DOING AN IPO?
We have not yet made any decisions about this.
13. WHAT IS THE TIMING FOR THIS TRANSACTION?
It depends on market conditions, but we will explore the
possibility of issuing equity sometime in the second half of 2001.
14. WOULDN'T THIS TRANSACTION REDUCE THE LIQUIDITY OF YOUR SHARES ON
THE NYSE AND ON THE MEXICAN BOLSA?
We will avoid losing liquidity on either the NYSE or the BMV by
targeting a different group of European institutional investors,
who could not invest in CEMEX before due to their investment
criteria. We believe that the NYSE and BMV listing will continue to
be attractive to global institutional investors as well as
dedicated regional investors.
15. DOES THIS MEAN THAT YOU HAVE ANOTHER LARGE TRANSACTION IN THE
PIPELINE THAT CANNOT BE ACQUIRED WITHOUT BREAKING UP YOUR STATED
FINANCIAL OBJECTIVES IF YOU FAIL TO ACHIEVE THE IPO?
As we have stated before, we will always be on the lookout for
investment opportunities to support our strategy. The acquisitions
must adhere to our investment criteria, which include achieving our
financial targets. A global player in our industry today must
evaluate every investment opportunity that is out there. We
constantly look at regions and facilities all over the world.
ENERGY ISSUES
16. WHAT IS THE IMPACT ON YOUR COST STRUCTURE OF THE RECENT INCREASES
IN OIL WORLDWIDE?
CEMEX, for the last few years, has been implementing a program to
burn different types of fuels in our production facilities. Most of
our efforts have been focused on burning petcoke, as this source of
energy is less volatile than fuel oil and gas.
We do not see changes in our cost structure due to increases in oil
prices worldwide. Most of our operations use coal or petcoke, which
have not been significantly affected by the oil increases. In the
case of Venezuela, we use natural gas which, due to the excess
supply, has a very stable pricing structure. Although in Mexico
fuel oil prices have increased, new investments in Cemex Mexico's
plants are being done to convert production facilities to petcoke.
By the end of the year we expect our Mexican operations to burn 40$
of petcoke from their total energy needs. In addition, Cemex Mexico
has entered a 20-year agreement with Pemex to purchase fuel grade
petcoke starting in the year 2001, thus ensuring stable energy
costs for this period.
We do not expect to have a significant decrease in margins for
Cemex, as we expect Mexico's margin to continue around 48%.
17. WHAT PERCENTAGE OF YOUR COST STRUCTURE IS REPRESENTED BY ENERGY?
Energy is an important part of costs. It represents between 20% and
40% of full production costs depending on the location and
production technology.
18. ARE YOU BEING AFFECTED BY THE NATURAL GAS PRICE INCREASES IN MEXICO?
The impact of gas prices in Mexico will not affect our cost
structure since we mostly use fuel oil and petcoke as our sources
of energy. Gas is used in limited quantities in our Mexican
operations (around 3%).
19. ARE YOU CONCERNED ABOUT ELECTRICITY PRICE INCREASES?
Cemex is constantly evaluating and developing self-supply power
generation projects in the countries where electricity prices are
significantly higher than the cost of a small to medium generation
plant or there is a deficit in electricity generation that would
affect our operations. As we have this strategy in place in all of
the countries where we operate, the electricity prices will not
significantly affect our operations or increase our costs. Cemex
will continue to look for opportunities to lower electricity costs
and take advantage of the power sector deregulation trend in the
countries where we operate.
For example, we have just started the construction of our
self-supply generation plant in Mexico to supply energy to 12 of
our cement plants. The generation plant burns petcoke and the
technology provider is Alstom/Sithe. This project ensures a low
price and guarantees the supply of electricity for our operations
in Mexico.
20. WHAT IS THE AGREEMENT WITH PEMEX REGARDING THE PETCOKE CONTRACT?
The long-term petcoke contract signed with Pemex in March 1998
guarantees an annual supply of 900,000 metric tons of fuel grade
petcoke. The term is for 20-years beginning in 2001. Substantial
annual saving are expected as this contract gives us the energy
needed for our self generation electric plant as well as our power
needs for most of our cement plants in Mexico.
SHARE BUYBACK
21. WHY DIDN'T YOU CANCEL THE SHARES THAT YOU HAVE BEEN BUYING BACK?
We have been buying our shares to hedge our Employee Stock Option
Plans and our Voluntary Employee Stock Option Plan. The option
programs as of today have been completely hedged, and as a result
of that we don't need to acquire additional shares from the market.
22. IS THIS TRANSACTION TAX EFFICIENT?
Yes, we structured the transaction to be tax efficient.
23. WHY ARE YOU BUYING BACK SHARES WHEN A FEW MONTHS AGO YOU ISSUED
SHARES FOR THE DIVIDEND PROGRAM?
The dividend election program had the purpose of giving our
shareholders the opportunity to reinvest in CEMEX shares at a
discount. The buyback program takes advantage of current CEMEX
valuation as it becomes a good investment for the company. Both
programs enhance shareholder value as one provides shares at a
discount to our existing shareholders while the other is an
effective use of our free cash flow.
GENERAL STRATEGY
24. WHAT ARE YOUR THOUGHTS OF THE CURRENT CONSOLIDATION PROCESS IN THE
GLOBAL CEMENT INDUSTRY?
As the largest multinational producers have grown over time and now
account for over 35% of the world's installed capacity (excluding
China), the M&A deals we are seeing today include those of larger
scale than what we used to see in the past. We will, however,
continue to see more traditional consolidation activities in some
regions of the world like South East Asia and the Americas. As you
know we are always seeking investment opportunities that meet our
investment criteria which we have shared with you on numerous
occasions. We are very committed to creating value to our
shareholders and we are quite comfortable that we will be able to
do so in the coming years.
25. YOU MADE PUBLIC YOUR INTEREST IN CIMPOR IN MAY. COULD YOU COMMENT
ON HOW THAT PROCESS HAS DEVELOPED AND WHAT YOU THINK WILL MOST
LIKELY HAPPEN TO CIMPOR?
As we stated in May, we have had discussions with the Portuguese
government and some Cimpor shareholders in order to explore
alternatives in which we could participate in the government's
privatization process of Cimpor. As you know, there is interest in
Cimpor from other cemet multinationals. Whenever we look at an
investment opportunity, we have to look at its value as part of the
Cemex portfolio, and how it results in value creation for our
shareholders. In our analysis of alternatives, we favor those with
the greatest opportunity for value creation potential. Investments
with a narrow opportunity in this direction will receive a lower
level of attention.
Given our momentum, diversification, and the breadth of opportunity
space, very few if any investments are crucial for CEMEX in order
to maintain our successful strategy or to strengthen our business
model. We are focused on investments that are most attractive.
Cimpor or parts of it are one of many possibilities in that
direction.
26. WHERE DO YOU THINK YOU MIGHT FIND ATTRACTIVE INVESTMENT
OPPORTUNITIES IN THE NEAR FUTURE? WOULD YOU CONSIDER MAKING
INVESTMENTS AGAIN IN THE DEVELOPED WORLD?
A global player in our industry today must evaluate every
investment opportunity that is out there. We constantly look at
regions and facilities all over the world. At this time we see
interesting opportunities in Southeast Asia, India, and the
Americas.
I would like to reiterate our commitment to a balanced global
portfolio, which would certainly include a developed market
component. In that vein, we will continue to leverage our expertise
in developing markets. If an attractive opportunity becomes
available in developed economies we may take advantage of it and
utilize such a position to bolster our growth strategy in the
developing economies. Over time, our vision is to have a portfolio
of cement assets located in countries that are predominately high
growth, and with branded product demand characteristics. This, we
feel, is the major driver of our success and our ability to deliver
high and stable margins over the last decade.
27. WHAT ARE YOUR VIEWS ON THE CEMENT MARKET IN MEXICO? WHAT ARE YOUR
VIEWS OF CEMENT PRICES IN THE MEDIUM TO LONG RUN?
This year, Mexico will be reaching volumes similar to those of 1994
(prior to the 1995 economic crisis), while the need for housing and
infrastructure has grown since then. We will be reaching these
levels thanks to the performance of the self-construction sector.
Back in 1994 demand was being driven in part by an expansion in
lending, which has not grown much since then. Given the favorable
expectations for the Mexican economy and as lending resumes, we
expect cement demand to grow steadily at a pace even faster than
GDP growth. In terms of pricing, we expect prices to rise on tandem
with inflation.
28. COULD YOU COMMENT ON YOUR EXPECTATIONS FOR CEMENT DEMAND GROWTH IN
THE SHORT TO MEDIUM TERM IN YOUR MARKETS?
In Colombia and Venezuela, we should begin to see a return to
historical growth in volumes by next year and 2002.
In Asia, the severity of the contraction that took place is likely
to result in above-average growth rates for the next two to five
years.
Mexico should continue to deliver higher than expected growth, as
foreign direct investment and portfolio capital return in response
to the policies outlined by president-elect Vicente Fox and his
team, which provide a hospitable environment to foreign investment.
Recent growth in Mexico (unlike what happened in 1992 - 1994) has
not been driven by credit expansion but rather by the external
sector of the economy, so it's less vulnerable in a slowdown. In
fact, there's more upside than downside as credit begins to flow
back into Mexico's capital markets.
In the case of Spain, we will soon be comparing ourselves against
very strong performance periods so delivering double-digit growth
will be increasingly difficult, but we don't see it slowing
significantly in the short term.
In the US, we have the benefits of both the Transportation Equity
Act for the 21st Century and the Aviation Investment and Reform Act
for the 21st Century for the market as a whole. We believe these
will, even in a soft landing scenario, probably lead to a
reasonable growth trajectory for our sector.
In Egypt, cement demand has grown at a healthy average pace of
close to 11% per year for the past five years, and the country
relies on cement imports to satisfy its domestic demand. The growth
prospects for domestic producers therefore are attractive as the
country works towards self-sufficiency.
29. COULD YOU COMMENT ON YOUR EXPECTATIONS FOR YOUR PARTICIPATION IN
SEMEN GRESIK? WILL YOU BE ABLE TO EXECUTE THIS TRANSACTION AFTER
THE SOUTHDOWN ACQUISITION AND THE SHARE BUYBACK?
The Indonesian government has expressed its interest in privatizing
its remaining stake in Gresik. However, this process has not moved
as quickly as we originally expected. We are currently working with
the Indonesian government in this process and remain committed to
increasing our stake in Gresik and to be able to fully execute our
capabilities as efficient cement plant operators. If this
opportunity becomes available soon, we are confident that we can
complete the transaction as our acquisition capacity by the end of
2001 is of about $4.5 billion, which is enough to include
Southdown, Semen Gresik and the share buyback program without
deviating us from our stated financial targets for leverage and
coverage.
30. IN THE US, COULD YOU PROVIDE US WITH AN UPDATE OF HOW THE SUNSET
REVIEW PROCESS IN GOING? WHAT WOULD BE THE IMPACT OF A RULING THAT
IS FAVORABLE TO CEMEX? A NEGATIVE RULING?
We are expecting a final determination in the Sunset Review process
in the third quarter. A favorable ruling will help in terms of
sentiment and momentum for cement producers in Mexico.
31. THE INTERNET RELATED UNDERTAKINGS SEEM TO REQUIRE A SIGNIFICANT
AMOUNT OF ATTENTION AND TIME FROM SENIOR MANAGEMENT. ARE YOU FACING
A RESOURCE CONSTRAINT AS DEMAND FOR MANAGEMENT TIME BOTH FROM YOUR
CORE BUSINESS AND FROM YOUR INTERNET EFFORT INCREASES?
We actually don't view our Internet initiatives as something
separate from our core business. In fact, we view our Internet
efforts as a proactive way to reinvent our company and to leverage
our skills even more in managing our increasingly global reach.
This translates into empowerment of company management and
therefore marks our transition into a much more efficiently managed
company.
