The merger of South Africa’s two biggest cement producers, PPC and AfriSam, could be approved by the competition authorities if assets were sold, according to ex-PPC chief executive Ketso Gordhan.
PPC yesterday confirmed its board had received a conditional, non-binding proposal from AfriSam Group that proposed, among other things, a merger between the two cement producers.
The company said its board was considering the proposal and would make a further announcement in due course once it had concluded its consideration of the proposal.
News of the proposal lifted PPC’s shares off the three-year low of R23.47 reached on Tuesday. PPC climbed as much as 6.46 percent to R25.55 but closed up 2.25 percent at R24.54.
Not hostile
Shares in the company have slumped following an acrimonious battle between PPC’s board and Gordhan, who was attempting to get himself reinstated as chief executive after resigning.
“It just seems opportune for AfriSam, striking while the iron is hot,” Sasha Naryshkine, a fund manager at Vestact, said.
Gordhan said he did not see AfriSam’s proposal as hostile and at the right relative valuation could be a good deal for PPC. However, he said the challenge would be to get approval from the competition authorities, because the combined market share of the merged companies would be about 50 percent.
Gordhan said the merger was possible if AfriSam sold parts of its business separately.
He said AfriSam’s Kimberley plant and its business in Tanzania, which would be fantastic for PPC’s African expansion, made perfect sense in terms of the proposed merger.
But Gordhan suspected AfriSam’s Mafikeng plant would have to be sold to reduce the combined market share of the merged business to below 40 percent.
This would make the proposed merger “do-able” with five players in the cement market, he said.
Gordhan agreed the timing of AfriSam’s merger proposal could be linked to the slump in PPC’s share price and the imminent intensification of competition in the South African cement market, with Sephaku Cement getting up to full production next year and Mamba Cement entering the market.
Gordhan, who owns 1.4 million PPC shares to make him one of the largest individual shareholders in the company, said he would support the merger subject to the relative valuation of the companies.
“PPC is at a historic low value. PPC’s market capitalisation when the proposed merger was announced was R14.5bn. When I left PPC it was R20bn.
“It depends on the price at which they value the business. As two equals, no. When PPC’s value is correctly taken into account, yes,” he said.
Offshore debt
AfriSam, previously known as Holcim South Africa, was taken over by the Government Employees Pension Fund (GEPF) in December 2011.
The Public Investment Corporation (PIC), the managers of the GEPF, obtained a 20 percent stake in AfriSam in June 2008 when AfriSam shifted its senior offshore debt of about R10 billion to the local market to reduce its exposure to exchange rate risk.
Fidelis Madavo, the PIC’s acting chief investment officer, yesterday confirmed the corporation currently held 12.57 percent of PPC and 66 percent of AfriSam. He said the PIC believed AfriSam was now a well-run and a significant South African cement producer.
“We think a potential merger between PPC and AfriSam would create a formidable cement player on the continent that will contribute meaningfully to South Africa and the continent’s developmental plans.
“We also think there could be significant synergies and value-unlock to be realised from a transaction of this nature,” he said.
No comments:
Post a Comment