Picture: ISTOCK
Picture: ISTOCK

The merger between Afrisam and PPC has fallen through for now but plans are already under way to resuscitate the deal, with Afrisam expected to submit a new proposal to PPC by Friday.

The new plan aims to create a group with greater scalability and access to capital than the rescinded proposal was able to deliver.

PPC announced on Friday that Afrisam had withdrawn its heads of terms, which had predefined the outcome of the merger and precommitted Afrisam and PPC to a basis for valuation among other terms.

The group's share price fell by more than 7% on Friday, closing at R4.87. PPC's share price had declined over the past six months, though it has recovered in recent weeks.

PPC chairman Peter Nelson said the heads of terms had not been settled to all parties' satisfaction.

"If you do a valuation based on the heads of terms and then do a reality check, comparing where the share price is, you start to get gaps that are difficult to explain and justify," Nelson said.

Scale and capital

Nelson said PPC had some idea that the cancellation was coming. Before then, the two companies were "quite some way" from concluding the deal.

A source closely involved with the merger talks said Afrisam's withdrawal was aimed at ensuring in a fresh round of talks that an eventual merged entity would have the scale and capital to grow not only in South Africa but on the rest of the continent, competing with the likes of Dangote Cement, HeidelbergCement and LafargeHolcim.

This meant there would be a need for more cash in the merged entity than the current heads of terms allowed.

The need for the change in terms was "about a confident growth strategy into the continent that is premised on more capital and significantly lesser debt".

A more energised conversation between the two boards and shareholders would occur in the next few weeks, the source said.

Nelson said it was up to Afrisam to submit a proposal that offered sufficient value to PPC and its shareholders. The next proposal would be on a clean slate.

Wait patiently

Afrisam first approached PPC at the end of 2014 but the merger talks fell through.

Afrisam again approached the group in February but PPC's chief executive, Darryl Castle, stepped down during the talks.

PPC has given Afrisam a deadline until the close of business on Friday to submit a new plan. "We are going to wait patiently this week. Let's see what they put on the table and let it be a proposal that we can all get our minds around. Then perhaps we will be back in negotiations, but until such time we are just going to wait," Nelson said.

"The company and itsshareholders want finality and certainty."

PPC was happy to remain an autonomous business. The group's short-term liquidity issues had been brought under control, Nelson said.

Afrisam said the group remained committed to a merger.

"It remains our belief that a transaction between the two companies offers the local cement industry an opportunity to develop a local cement champion with the required scale, operational efficiency and balance sheet to enable further investment opportunities in South Africa and the rest of the continent," said acting AfriSam CEO Rob Wessels.

AfriSam would not make any further comment other than the statement it had released, the company said.

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