Picture: ISTOCK
Picture: ISTOCK

Cement producer AfriSam has submitted a revised merger proposal to PPC as Canada’s Fairfax Africa Investments has undertaken to buy R2bn in ordinary shares in PPC at R5.75 a share.

The conditional partial offer, confirmed by PPC in a stock-exchange announcement, affirms that AfriSam is the bidder in any merger. It now has the backing of the Toronto-listed African investment unit of Canadian insurance and investment management group Fairfax Financial Holdings.

The proposed merger ratio is based on a share exchange of 58 PPC shares for 42 AfriSam shares. This valued PPC at a 62% premium based on pro forma earnings multiples applied to the two businesses, AfriSam said.

The revised merger proposal includes a R4bn recapitalisation of AfriSam before any merger with PPC. It comes after the two companies said in late August that talks had been terminated despite AfriSam remaining "committed to a possible combination" of the two South African groups.

"We are excited that Fairfax Africa sees the investment potential in the combined company as evidenced by its R4bn investment committed to AfriSam and R2bn partial offer to PPC shareholders," said AfriSam acting CEO Rob Wessels.

Ultimately, our shareholders will drive any proposed merger as the offer is conditional on the independent board making a positive recommendation to shareholders and the shareholders, in turn, then … making their shares available to purchase
Siobhan McCarthy
PPC group manager of corporate affairs

"Among other benefits, the investment … will greatly reduce the underlying debt of the merged entity, which will have sufficient liquidity and capital to compete in its current markets and selectively target growth opportunities on the continent."

Wessels said a combined company would be well positioned to capitalise on higher growth in Africa. PPC already had new assets that were starting to produce millions of tonnes of cement in Rwanda, Ethiopia, Zimbabwe and the Democratic Republic of Congo.

AfriSam, which produced the equivalent of about 40% of PPC’s output, also had a controlling stake in a cement plant in Tanzania. The companies are SA’s second biggest and largest cement producers, respectively. The parties are looking to create a cement producer that can compete in the rest of Africa. This comes amid dismal public infrastructure markets in SA and fierce competition from Nigerian and Chinese-backed empowerment players in SA, along with cheap imports, predominantly from Pakistan.

"Ultimately, our shareholders will drive any proposed merger as the offer is conditional on the independent board making a positive recommendation to shareholders and the shareholders, in turn, then … making their shares available to purchase," Siobhan McCarthy, PPC group manager of corporate affairs said on Monday. "We did not stipulate the premium in our announcement. However, AfriSam, in their press release, do provide a view," she said.

It is not yet clear who will hold the controlling stake. But what is certain is that transformation of SA’s cement industry is playing a big part.

Fairfax Africa is no stranger to SA or the Public Investment Corporation (PIC). In 2014, it was involved in the delisting of agricultural services and foods group Afgri in partnership with the PIC, buying a 60% stake through AgriGroupe Investments. The remaining 40% was held jointly by the PIC, a black empowerment consortium and Afgri management.

Fairfax is also thought to have been involved in the 2014 delisting of Country Bird Holdings. In February 2017, Fairfax Africa completed a $500m fund-raising exercise. Its stated investment objective is to acquire control or substantial influence where possible. Last week, it announced it owned 42.4% of mining company Atlas Mara.

With Ann Crotty

allixm@bdfm.co.za

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