PPC has rejected a partial offer by the African arm of Canadian insurer Fairfax Financial Holdings to buy R2bn of ordinary shares in SA’s biggest cement maker for R5.75 a share.

PPC and at least 25% of the group’s shareholders had earlier rejected a joint conditional partial offer from unlisted South African cement producer AfriSam and Fairfax Africa Investments, saying it significantly undervalued PPC.

The offer was conditional on a merger between PPC and AfriSam, subject to a R4bn recapitalisation of AfriSam before any merger.

The parties had said PPC was worth between R8 and far more than R10 per share, if a control premium was added. The proposed merger ratio was based on a share exchange of 58 PPC shares for 42 AfriSam shares, valuing PPC at a 62% premium based on pro forma earnings multiples of the two businesses, according to AfriSam.

“The independent board advises shareholders that … it has resolved not to recommend to shareholders that they accept the partial offer,” PPC said in a stock exchange announcement on Wednesday.

It said the board had taken account of the views of the independent expert, PPC’s own valuation work, PPC forecasts and the group’s recent financial and business performance, and the need for payment of a control premium — as well as feedback from shareholders.

“The independent board has … advised Fairfax that it will not be recommending the partial offer … and that PPC will not convene a general meeting of the shareholders for purposes of approving the proposed merger,” PPC said.

Representatives of AfriSam-Fairfax had not responded to queries by late Wednesday.

Meanwhile, PPC said it was continuing engagements with Irish cement maker CRH and Europe’s LafargeHolcim regarding their respective nonbinding expressions of interest.

CRH had indicated it was considering submitting an all-cash proposal to buy a controlling stake in PPC.

Sibonginkosi Nyanga, an analyst at Momentum Securities, said on Wednesday: “We think [the rejection of the bid] boils down to valuation and also competition remedies around [any] merger. We think Fairfax’s R5.75 per share valuation had undervalued PPC significantly.

“If that figure was used to initiate a conversation, one hopes that Fairfax will come back with a higher offer as a number of companies have shown interest in PPC. It’s a bit opaque how they [Fairfax] valued PPC,” Nyanga said.

PPC is in a closed period ahead of its interim results on Thursday. PPC said earlier in November that it expected net profit attributable to shareholders to skyrocket by as much as 200% in the six months ended September 2017.

It said headline earnings per share were expected to rise by between 30% and 40%.


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