PPC still mulling merits of merger

29 September 2017

The Independent board of PPC is still considering the merits of the partial offer by the Toronto Stock Exchange-listed Fairfax Africa company to acquire a stake in the JSE-listed cement and lime producer and a proposed merger with rival cement producer AfriSam.

The independent expert was yet to issue an opinion on the fairness and reasonableness of the partial offer, PPC said.

The offer by Fairfax is conditional on PPC shareholders approving a merger between the two groups and both groups passing the necessary resolutions to give effect to the merger by December 31. The merger, if approved, would involve the acquisition by PPC of all the issued shares in AfriSam in exchange for an issue of PPC ordinary shares to the shareholders of AfriSam at a ratio of 58 PPC shares to 42 AfriSam shares.

This ratio is calculated on a PPC share price of R5.75 and the equity value of AfriSam being R7.55billion with net debt not exceeding R866million. Although PPC’s board still has to fully consider the Fairfax partial offer and the opinion of the independent expert, it previously indicated that its preliminary opinion was that PPC’s shares were undervalued at R5.75 and did not constitute sufficient compensation for PPC shareholders.

The PPC board previously reported that it had received “indicative proposals” from two other bidders about a potential pan-African combination with PPC, but did not refer to either of these bids in its presentation.

PPC indicated that the transaction would take between 12 and 18 months to close, because it required the approval of the competition authorities. The company added that the timeline may be extended by the Takeover Regulation Panel “on good cause shown”, while at any time a failure to meet any condition or submissions of a further offer may impact the timeline.

Turning to its $280m 1-million-ton-a-year plant in the DRC, PPC said that there had not yet been financial close on the project, and it was considering three options to reduce the impact of the project on its balance sheet, including a JV with another cement producer. PPC said there had been project financing shortfalls to date of $31.5m, of which R17m was capital and interest, that had been settled from cash reserves.

But PPC said the DRC project had a further funding requirement of between $23m and $27m in its 2018 financial year, of which $17m was capital and interest.

It said the two other options included debt restructuring. PPC’s rest of Africa debt at end-March, excluding the DRC, totalled R1.6bn while its DRC debt totalled R2bn ($159m) at the end of August. Shares in PPC dropped 1.76percent yesterday to close at R6.15.

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