Fairfax bid for PPC shares is 43% undervalued, says major shareholder
PPC is worth at least 43% more than what Canada’s Fairfax Financial Holdings has offered for the share component of its bid, according to the holder of about 5% of stock in SA’s biggest cement maker.
Value Capital Partners (VCP) is among PPC investors who oppose the Fairfax bid for R2bn worth of shares at R5.75 each, the Johannesburg-based money manager said in a October 4 letter to PPC chairperson Peter Nelson. PPC is valued at more than R10 a share, it said, without saying how it calculated that price.
"If the proposed transaction is placed before shareholders for a vote, we will vote against it," VCP CEO Sam Sitole said in the letter, which has been seen by Bloomberg. "Our position would equally apply to any current or future transaction that does not meet our fair value guidance."
The offer by Toronto-based Fairfax was made on condition that PPC merges with local rival AfriSam Group, a tie-up that’s opposed by investors holding more than 25% of stock, Nelson said on Thursday.
PPC has hired Investec to review the Fairfax approach, which also includes a recapitalisation of AfriSam, and said last week the bank could take "some time" to reach a conclusion.
PPC shares pared losses and traded 2% lower at R6.24 a share as of 2.50pm in Johannesburg on Monday, valuing the company at R9.9bn.
Investor hopes for a bidding war for PPC faded on Friday when Dangote Cement, the continent’s biggest producer of the building material, withdrew its interest. PPC has said a second, unidentified industry rival has expressed an interest, but no offer has been forthcoming.
PPC and AfriSam have been in on-off talks since February about combining their operations to strengthen balance sheets and better expand on the continent.
VCP’s valuation of PPC is based on an anticipated rise in profit contribution from new African operations and the end of a capital expenditure programme related to the construction of plants in countries including Ethiopia and the Democratic Republic of Congo,
Sitole said in an e-mailed response to follow-up questions. Furthermore, last year’s R4bn rights issue means there’s no need for a further cash injection, he said.
Fairfax didn’t immediately respond to a call placed outside office hours.