AfriSam says merger offer for PPC ‘fair’

21 September 2017

South African cement maker AfriSam said on Wednesday a merger proposal valuing its rival PPC at $700-million was fair, suggesting it has no intention of sweetening its offer.

Shares in PPC dropped 2.52% to R6.19 at 1314 GMT, but still well above a R5.75 per share valuation in AfriSam’s proposal as the company is also being pursued by Nigeria’s Dangote Cement and one other unspecified bidder.

Comments posted on AfriSam’s website, which is backed in the transaction by the African unit of Canada’s Fairfax Africa Holdings, comes days after PPC’s board said the proposal “fundamentally undervalues” South Africa’s biggest cement producer and that it expects a higher offer.

“AfriSam and Fairfax Africa believe that the partial offer and merger reflect the fair and relative value of PPC and AfriSam based on the unaffected market price, as of 30 August 2017, for PPC shares and other valuation benchmarks,” AfriSam said in a statement.

The all-share offer from AfriSam, in conjunction with a cash offer of R2-billion ($150-million) for a 23% stake from Fairfax Africa, values PPC shares at 5.75 rand but expectations of a higher bid, either from AfriSam or others have kept the share price above that level.

AfriSam’s proposed merger is based on a share exchange ratio that will see PPC owning 58% of the combined entity and AfriSam owning 42%. It also represents a 57% premium for PPC shareholders based on projected earnings of both cement producers, AfriSam said.

This is AfriSam’s third attempt in three years to merge with PPC and create a Pan-African cement group with assets across six countries, after its previous bid was abandoned in February.

If PPC shareholders approve the merger and partial offer, Fairfax Africa will be the largest shareholder, with about a 38% stake, AfriSam said.

Fairfax Africa said on Sept. 4 the partial offer, recapitalisation of AfriSam and the merger is supported by the Public Investment Corporation and Phembani Group, AfriSam’s biggest shareholders.

Questions have been raised about potential objections to the merger by the competition commission, but AfriSam said if the combined entity was forced to sell strategic assets, it “will be manageable and will not result in an outcome which undermines the commercial and economic rationale for the transaction.” 

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