Sikonathi Mantshantsha Deputy editor: Financial Mail
AfriSam's Ulco plant, near Kimberley in the Northern Cape. Picture: SUPPLIED
AfriSam's Ulco plant, near Kimberley in the Northern Cape. Picture: SUPPLIED

When the shareholders of PPC, SA’s largest cement producer, meet on Monday, they will do so in a state of suspense, having to wait for a third attempt to combine their company with its smaller suitor Afrisam.

This is after Friday’s cancellation of a second attempt to merge the country’s largest producers of the commodity. The first merger offer, also from Afrisam, came in December 2014, but was halted in 2015.

Afrisam was preparing a bigger and better proposal to merge with its larger rival PPC, said people close to the process.

The new proposal would include a strategic equity partner that would inject a large cash amount to recapitalise the combined entity, said people who cannot be named due to the sensitivity of the talks.

"It became clear during the talks that it would not be enough for the combined entity to only lower the debt profile, but would need further gunpowder to compete more aggressively against larger producers on the continent," said one. Talks with the prospective investors are at an advanced stage.

"We cancelled the talks so we can do one big and better deal without having to go back to shareholders for a recapitalisation. We will do it all at once."

Afrisam cancelled the latest head of terms agreement under which the six-month merger talks had been held. "Despite the cancellation … AfriSam remains committed to pursuing a transaction and intends submitting a new proposal," said AfriSam’s acting CEO, Rob Wessels.

Afrisam is majority-owned by the Public Investment Corporation (PIC), while the Phembani Group owns 30%, and has management control. The PIC is also PPC’s largest investor with more than 15% of the stock.

The commercial rationale for the merger was sound and could be sold to shareholders. Wessels said. Afrisam was "of the firm view" that a deal between AfriSam and PPC would greatly benefit the shareholders of both companies and it would continue talks with PPC.

Both PPC and the unlisted Afrisam are saddled with debt, while demand is falling. In addition to its home market, the larger company has recently commissioned new plants in Zimbabwe, Rwanda, Ethiopia and the Democratic Republic of Congo. Afrisam also operates in Tanzania and Lesotho.

"We still need to grow on the continent to compete effectively," a source said.

PPC’s board, on the other hand, seems to be running out of patience in the conclusion of the talks. "There comes a limit to the amount of time we dedicate to this," said PPC chairman Peter Nelson, ahead of a scheduled board meeting in which the company would have made a decision on what to recommend to shareholders. "We would have announced our position on the proposed deal to our investors on Monday, but now the talks have been terminated."

PPC would, however, always consider any opportunity available to it, he said.

Asked why the talks had been dragging on since February, Nelson said they had hinged on the predetermined valuation formula as set out in the heads of terms agreement. "The pre-agreed valuation basis would probably yield numbers that are not attractive to the parties at the moment," he said.

Asked if the merger would be good for PPC, Nelson said "on paper" the merged business looked good. However, "it depends on what the terms are".

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