CORRECTED - NEWSMAKER-Cemex's Zambrano under fire as shares plunge

Fri Oct 7, 2011 7:38pm EDT

* Zambrano is grandson of Cemex founder, CEO since 1985

* Investors, analysts start to question CEO's credibility

* No obvious successor waiting in wings

By Elinor Comlay

MEXICO CITY, Oct 6 (Reuters) - Embattled bosses at Cemex tried to draw a line under what has been a painful 2011 by wishing investors in New York a happy new year last week.

But though they hoped the Jewish New Year would offer a symbolic opportunity to start afresh, the team led by Chief Executive Lorenzo Zambrano at the meeting could not reverse a massive fall in the Mexican cement maker's shares.

Investors doubt the former emerging-market darling can reduce a crushing debt burden. Shares in the company had this year already lost 63 percent of their value by the Sept. 29 meeting. They went on to fall a further 16 percent, touching a 13-year low of 3.25 pesos ($0.25) per share on the Mexican exchange on Monday.

"The market is having a fundamental disagreement with management's outlook that's big enough to drive a truck through," Elizabeth Collins, an analyst at Morningstar, said of the company Zambrano's grandfather founded in 1906.

It's not the first time that markets have turned against Cemex, which has racked up massive debts following a series of ambitious takeovers that have come back to haunt Zambrano.

In 2008 and early 2009, the fall in the absolute value of its Mexican-listed shares in a nine-month period was more than double the decline in the last nine months.

But its shares are now worth just one-twelfth of what they were in mid-2007, when Zambrano was seen as the poster boy at the helm of one of Mexico's most successful companies, and its U.S.-listed shares once topped more than $30.

Now Zambrano's credibility is on the line.

The 66-year-old has felt Cemex's fall personally. Unlike fellow Mexicans Carlos Slim and Alberto Bailleres, Zambrano no longer ranks in Forbes magazine's list of billionaires.

Zambrano still collects and races vintage cars but keeps a low profile in his home town of Monterrey, an industrial center in Mexico's north that has also been battered in recent years by increased violence in Mexico's drugs war.

Known as a private person, Zambrano gives few interviews and has never married. But he uses Twitter, sometimes sending messages that only add to perceptions he is out of touch.

The CEO made headlines earlier this year after using his Twitter account to criticize people leaving Monterrey because of the spiraling drug violence.

"Whoever leaves Monterrey is a coward," he wrote. Zambrano lives in the safety of Monterrey suburb San Pedro Garza Garcia, one of the wealthiest neighborhoods in Latin America.

And on Monday, just before Cemex stock was suspended from trading because of its rapid fall, Zambrano wished his 65,000 Twitter followers a productive week.

The disconnect between Zambrano's view of Cemex and the view from outside centers on its ability to meet crucial performance targets agreed with creditors.

At the investor day in New York, analysts questioned whether Zambrano -- who has headed the company since 1985 -- grasps the weight of the $17.3 billion in debt hanging over Cemex and its need to boost profits.

BLUFFING?

Zambrano, wearing a suit but no tie, faced down repeated questions at the Investor Day about how Cemex will meet the requirements, known as covenants, due in December. "We are going to perform," he said. "We are not, absolutely not, renegotiating our covenants."

But investors simply do not believe him.

"The company and Zambrano are adamant that they can remain in compliance. But if that's the case then the stock wouldn't have sold off after the investor day," said Robert Wetenhall, analyst at RBC Capital Markets in New York.

A Reuters poll on Tuesday showed four of six analysts expect Cemex will miss its December target for debt to be no more than seven times its earnings before interest, tax, depreciation and amortization (EBITDA).

"A CEO can be adamant but their visibility is not that much better than everyone else's -- construction activity is not something they have that much control over," said Collins.

Zambrano says a management restructuring earlier this year to cut costs and bureaucracy is already helping the company's bottom line.

But analysts believe bigger changes are needed and they were hoping executives at the investor day would explain how the company will improve its performance.

Zambrano said Cemex is targeting $1 billion in asset sales by the end of next year, but he did not give details other than that $180 million will happen this year.

Cemex head of communications and investor relations Maher Al-Haffar said the company could not give specific details on the potential sales given volatile market conditions.

"It's very difficult for any company, frankly," he said. "It's not arrogance, it's not asking people to take it for granted or trust us, it's just difficult to provide that kind of a road map."

Al-Haffar said he was shocked by the market's reaction to Zambrano's explanation of Cemex's strategy, conceding the company had perhaps not communicated well enough.

Like many of Mexico's top businessmen, Zambrano, who holds an MBA from Stanford University, was born into his job heading a firm that dominates its sector in Mexico.

Three other family members are on Cemex's board of directors, although the company says directors and their families own less than 3 percent of its shares.

The company has not laid out a succession plan -- Zambrano has no children, and it is not clear who would replace him should he leave the post. Chief Financial Officer Fernando Gonzalez is not seen as a successor.

And even as Cemex shares reflect investors' dissatisfaction with Zambrano's performance at the investor day, analysts say a change in leadership is unlikely.

"I don't think anyone could do much better," said Wetenhall.