PPC uncertainty sinks shares
Merger talks with Afrisam aimed at creating a South African cement champion in question after the second high-profile board member leaves
Cement producer PPC’s share price slumped 13.7% to R4.22 on Monday following news that CEO Darryll Castle was resigning with immediate effect.
Castle is the second high-profile board member to announce his departure from the group. Last week, nonexecutive director Tito Mboweni bailed out on the company, which is in the midst of discussions to merge with Afrisam.
PPC said Castle would be available for six months to ensure a smooth handover. Johan Claassen, the MD of PPC’s South African cement business, will act as CEO while the board seeks a replacement.
PPC would not comment on speculation that the two resignations are related to disagreements over merger talks with Afrisam aimed at creating a South African cement champion. Previous merger talks were abandoned in early 2015, but were resumed in February.
In March Afrisam’s CEO of seven years, Stephan Olivier, announced his resignation. He was replaced on a short-term contract by Rob Wessels, a former chief investment officer at Afrisam’s black empowerment partner Phembani Group, which is led by Phuthuma Nhleko. Olivier’s resignation prompted speculation that Castle was the prime candidate to lead the merged entity.
The uncertainty over leadership is an additional burden on a merger that has been pushed by the Public Investment Corporation and members of the PPC board for several years. Last year the PIC revealed it had pumped R13bn into Afrisam since it funded the black empowerment deal and now holds 66% of the equity. It is also the single largest shareholder in PPC, with a 15% stake.
The merger talks are likely to lead to difficulties with the competition regulators given that the merged entity will control more than 60% of the domestic cement market. Regulatory approval could require the two companies to dispose of substantial assets in SA. PPC’s communication manager has said the merger would create a company that is financially stronger, operationally more efficient, with deeper technical capability and well placed to develop as a major African cement producer. However, analysts said putting two weak companies together did not make one strong one.
Castle was appointed CEO following the PPC annual general meeting in January 2015, which represented the final showdown in a high-profile battle between dissenting shareholders and the board.
The shareholders led by Foord Asset Managers and Viso Capital had, in the wake of the controversial resignation of Ketso Gordhan, pushed to secure six board positions. Only one of their nominations, Peter Nelson, secured a position.
At the time Mboweni, nominated by the PPC board, was tipped to take over from Bheki Sibiya. But the position went to Nelson, whose chairmanship was confirmed in September.