Investors in South Africa's largest cement maker are spoilt for choice. On Friday LafargeHolcim formally joined the fray and said it would conduct a due diligence study and then submit a firm offer to merge some of its African operations with PPC. LafargeHolcim appears determined to eclipse Afrisam's R2-billion cash offer for PPC stock.
While the finer details would be fleshed out in a binding proposal expected in the third week of November, LafargeHolcim's offer would include a cash-and-shares combination that would be topped with a special dividend for long-suffering PPC investors. PPC, however, cautioned investors that the LafargeHolcim due diligence study might not lead to a firm offer for their shares.
In September Afrisam, South Africa's second-largest cement producer, offered to buy up to R2-billion in PPC shares for R5.75 each. As part of the Afrisam proposed merger offer, Canada's Fairfax Africa Investments would invest R4-billion to pay Afrisam's external debt. Afrisam and Fairfax have until November 22 to produce a circular in which the consortium will make its case to PPC's investors.
PPC investors will be presented with an opinion on the fairness or otherwise of the Afrisam and Fairfax offer. Investec is conducting the study. But the market price of PPC has already galloped significantly past the offer price. On Friday the stock jumped to breach R7 a share, more than doubling the market value since August 16.
"We will evaluate our position in due course," said Rob Wessels, the acting CEO of Afrisam. "We don't know what the terms of the LafargeHolcim proposal are, so we cannot speculate."
Nigeria's Dangote Cement also made a non-binding offer to merge its operations with those of PPC, which has built new plants in Zimbabwe, Ethiopia, Rwanda and the Democratic Republic of Congo. Dangote withdrew this on October 6.
The overtures for PPC's attention have set those shareholders with deeper pockets scrambling to position themselves to have a major say in how the fate of the company will be decided. Last week the Public Investment Corporation increased its stake in PPC to 21.22%, making it by far the largest investor. If the PIC raised its stake to above 25%, it could single-handedly block any special resolution authorising any transaction it does not like. The manager of the pensions of public servants also owns 66% of the struggling and unlisted Afrisam.
The local unit of Prudential Investment Managers notified PPC on October 11 that it had also increased its stake, held on behalf of clients, to 15.18% of the company. The previous day, Value Capital Partners said it had acquired up to 5.01% of PPC.
Business Times has been informed that a group of shareholders, including Value Capital and Prudential, have written to PPC expressing opposition to the Afrisam merger proposal on the basis that it "undervalues" the company. These investors are said to collectively own more than 25% of the stock.
Sam Sithole, CEO of Value Capital, said his company was a buyer at these levels. "We see the fair value of PPC at about R10 a share," said Sithole.
PPC chairman Peter Nelson is sitting pretty. The PPC board "will evaluate every bona fide proposal with the potential to unlock value for shareholders", he said.
"Regardless of the outcome of the concurrent processes now under way, we believe that PPC is a solid business in its own right, focused on delivering shareholder value by improving profitability, maximising our new investments and strategic options."
The recently commissioned plants will have boosted PPC's production capacity by 33%, to 12.4million tons when all its plants are commissioned by April 2018. Last year PPC embarked on a R4-billion rights issue, which took care of its pressing financial commitments. Some of the new plants have started generating revenue, meaning PPC has little need for a merger.
LafargeHolcim is awaiting regulatory approval from the Lagos Stock Exchange for its proposed 131.65-billion naira (R6.1-billion) rights issue. The funds would be deployed to expand the company's operations in the regions, and to better compete with larger rival Dangote Cement, it said. According to Reuters, LafargeHolcim would also issue a 25-billion naira commercial paper to refinance its debt. The company's debt stands at over 221-billion naira.
Afrisam, on the other hand, is struggling with low demand in the South African market and a heavy interest-bearing debt burden of R4-billion, which Fairfax will settle if the proposed merger with PPC does go ahead. The R3-billion it owes to current investors will be converted to equity if the PPC transaction proceeds.
Having culled about 200 jobs, Afrisam is still "underperforming" financially, said the PIC in a report to parliament last week. It employs 1229 people, according to the PIC.
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