Proposed merger of PPC and Afrisam boost shareholder value

Posted On Tuesday, 13 January 2015 13:49 Published by
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PPC-AfriSam merger seems to make a great deal of sense for the companies.


Their combined businesses and footprints could give them the best possible chance to compete effectively in what is already a highly competitive African cement market.

But with the Public Investment Corp (PIC) as the dominant shareholder of both companies, a few questions remain, including the timing of the proposal and the PIC's full reasons for wanting a tie-up. Some believed that since PPC had lost a quarter of its value since board issues arose in September, AfriSam may have been making an opportunistic grab for its larger competitor.

However, this is not the case, say sources close to the matter, as AfriSam proposes being swallowed by PPC in exchange for new PPC shares (which are worth a lot less than they were three months ago). In what appears to be a proposal for a cashless merger, AfriSam suggests using a merger ratio of 55%-65% in favour of PPC and 35%-45% in favour of AfriSam.

AfriSam envisages a merged entity with a market value on the JSE of more than R25bn. The new entity could be included in various global indices and the PPC stock might be rerated. On top of that, AfriSam believes the deal could give rise to "synergies" worth more than R10bn, sources say. AfriSam and PPC compete in the central SA cement market, which surrounds and includes Gauteng, and together would have about 60% of the SA market.

Of course, a merger of the two biggest cement companies might struggle to find favour with competition authorities, though AfriSam reportedly says its initial legal advice has been "positive". The companies' operations elsewhere in Africa seem to complement each other well. AfriSam has a cement plant in Tanzania.

PPC has existing operations or plants under construction in neighbouring countries Rwanda and the Democratic Republic of Congo, as well as in Ethiopia and Zimbabwe. AfriSam hopes to have PPC's support to start the due diligence process in mid-January, and aims have a full merger agreement by the end of March. The market is yet to show any real support for PPC's announcement that it is considering the merger proposal.

Last modified on Wednesday, 14 January 2015 08:37
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